The change of consciousness and the market

Brett N. Stinberger - Doctor of Philosophy and Professor of Psychiatry at the Medical University in Syracuse, NY. New York. He is also an active trader and writes articles on market psychology. The author of the book "Psychology of Trade, 2003. Doctor Stinberger published over 50 articles on short-term approaches to behavioral change for traders.

Consider the following scenarios:
. Highway patrolling officer aims his radar gun at passing cars to determine their speed. He sees a car moving at a speed of 45 miles per hour in a zone, which allowed only 30 miles per hour. After the car passed the police, he accelerated to 50, then 60 and 70 miles per hour. The officer sighed with relief, referring to his partner, "do not worry. It goes on the road so quickly that, ultimately, would slow down!"

. psychologist meets with the client, which complains of depression. In the past few weeks, she could not normally eat, and sleep was troubled. At that meeting, customer states that now, when it comes to beds, it is regularly visited by thoughts of suicide. "This is good news," says the psychologist. "You feel so bad that soon you must be better!"

. The second time in succession, the stock market falling more than 3% for a session, with the number of shares that make the new minimum of 52 weeks, exceeding the number of stocks making new records. Volume and volatility increased, with lower prices, a well-known market analyst concludes, "we see capitulation. This is a good time to buy."

In all three cases, people try to make conclusions about the changing trends, based on its rising trajectory. Interestingly, if the first two situations seem absurd, it was the third major element of the recent market commentary. This was also the main reason why investors have kept their long positions during the recent decline, refusing to sell, where the bottom may already be very close.

In this article, we wish to explore the psychology of a turn and make some clarity on how the change in consciousness and in the markets. We believe that this analysis will help investors and traders to form their marketing strategies in the light turn occurring in the markets and what it gives us hope.

Turn and the change of emotion
The idea about the positive feedback loop is common to many approaches in psychotherapy. Problems arise when people become trapped in repetitive patterns that create a negative impact. As the effects of increasing, then make efforts to overcome them with the repetition, creating a downward spiral. A classic example - sleep. Once a person finds that he can not sleep, he begins to worry about sleep and its various efforts to fall asleep. Of course, it is difficult to feel naturally sleepy, when try to make all their energies to relax, despite the fact that most of these efforts help to maintain vigil. Oddly, the best treatment for insomnia that is to persuade people to cease all efforts to make sleep. A simple implementation of boring work is enough to distract their minds from insomnia and naturally immersed in drowsiness and sleep. The key to "cure" is to change the strategy to combat the disease, with considerable emotional impact and repetition to make sure that the new model becomes self-sustaining.

A study conducted by psychologist Daniel Wegner of the University of Virginia shows that many individual changes that have the ironic quality. When we try to control the action, such as in trying not to think of the beast, or the case, the results tend to have unpleasant consequences: ironic process leads us to focus even more on them. People change, as he observed, when completely changing their efforts and prevent this ironic process.

British psychologist Michael Apter, A theory of change of motivation, which helps to make sense of this irony. His research shows that emotional states are organized in the polar extrema. During the day or week, people are changing from one pole to another, as in the case of rights, moving from excitement to boredom. Much of what psychotherapists reach - it is the movement of patients from one pole to another, giving it access to new thoughts and behaviors.

Example of changing Aptera can be found in a study from the University of Texas psychologist James Pennebekera. He found that people who are making efforts to avoid expressing painful emotions reached to overcome many of these emotions that are detrimental to their mental and physical health. However, it is interesting that people who write in journals about their suppressed emotional pain, find relief from this and then enjoy an even better health. Once again, the vehicle was found, radically changing the direction of human effort.

Changes in markets
Markets, we believe, act on the same principles of psychological change, and people. In a sense, this is Newton's first law of mechanics applied to the conscience and markets: an object in motion tends to stay in motion with the same speed and in the same direction if it does not work unbalanced force. This unbalanced force of the therapist encourage the patient to the opposite pole, which creates a change in mood and behavior. So, what provides the unbalanced force in the market? Here for the answer, we turn to the author of "Fractal Market Analysis" and a senior manager in the "Systematic Asset Allocation for PanAgora Asset Management Inc." Edgar Petersen. He explained that market participants follow a variety of temporary formats. Some traded in one minute periods. Others hold positions in the next few days, some for several weeks or longer. While the magnitude of changes in average prices may vary as a function of holding period, the distribution of these changes formed the same way among time periods. What seals the market, as Peters explains, because these are events with low probability in the short run - extreme increase or decrease, which are normal events in a long-term time formats. When there is a sharp short-term increase or decrease, creating the relative values in order to sell or buy for the participants in a long-term time formats, which are then included in the market. They provide a locking force that develops a short-term trend. In its way, traders and investors trading in the longer-term temporary formats are physicians for the market. When entering the market when prices are attractive high or low, they become agents of turn.

One important application of this line of reasoning is that the trends remain in force until the price reached extremes that induces a long-term participants enter the market. Markets seemed to be a victim of the same process as sardonic and people. While traders and investors are actively looking for tops and bases, markets adamantly continues its increase or decrease. Only turning the effects of participants in trading on the longer-term temporary formats may push the market trend to its opposite pole.

Facing a market in history
Paul Desmond The study, published in the February 2002 issue. "Lowry's Reports", supports this notion of the market turn. Returning in 1938., Desmond investigated all cases of significant market declines. He specifically looked at the volume of declining stocks and increasing every day, and the distribution of the total number of changes to the increasing and declining shares. Desmond found that the major market decline is usually accompanied by a number of days in which 90% of the volume was concentrated in falling shares and 90% of price changes has also been concentrated in the declining shares. This allowed him to assume that the panic selling was illegible and a sign of the last stages of market declines. He also found that the reduction does not end until one or more days 90% of the volume was concentrated in increasing shares and 90% of price changes has been concentrated in increasing actions. This is using our words, it was an unbalanced force, which created a turn. Strong top-down trends have tended to remain in force until it had established such trading conditions that buyers (possibly selling at more long-term time formats) entered the market. Can the market minima be predicted in advance? No, although they can be quickly identified, as soon as the days have been a strong surge. A market bottom is not there, regardless of subsequent market action. This massive buying marked Desmond, which form a bottom in the markets. "Days of panic selling can not make the market turn, draws the attention of Desmond," any more than the mere reduction of the selling price of the house must meet the enthusiastic buyer. Requires strong demand, not only reducing the proposal to make prices rise significantly. "

How does this relate to today's market?
Desmond drew attention that the decline in September 2001. did not show a single day in which 90% of the volume and price changes were concentrated in the shares falling. Similarly, while improving, which followed the decrease in September, there were no days of strong demand, in which 90% of the volume and price changes were concentrated in increasing actions. This has prompted the "Lowry's Reports" to conclude that we have not seen the final bottom of the market, despite the seriousness of the September decline. In the future, their conclusion was correct. After that, the 2 nd July 2002. We had a day with 90% of the total, concentrated in declining stocks, when his value was at the top of the 80th figure. The sharp increase on July 5, showed 90% of the total, concentrated in increasing stocks, but then the acceleration of dissolved without a separate 90% on the day in any direction. This raises the very discomfort assessment by Desmond noted that the final fall of the market can not be broken until we saw a series of top-down days with 90% of th negative level and a sufficient reduction in prices to attract hunters for impairment of assets.

"Look at the degree of reduction that we had," exclaimed Desmond then in surprise, "and we still have not had a panic stage where we had a long bull market where investors have been trained, like Pavlov's dogs, to buy at every fall, and will require long time to make people unlearn the lessons from these. " Indeed, Desmond draws the attention that this may explain why the basic top-down markets tend to occur once in every generation. If Wegner, Apter, Pennebeker, Newton and Desmond are right, the only significant Facing shape change. If the price has retreated from its highs, but still not so much that buyers rushed in the stampede, it might not mean to turn the market. Turn proizoyde only when the change minds of its participants.

Forex Magazine
based on www.brettsteenbarger.com