All price movement is a function of group behavior. The market prices
flow back and forth like a tug of war between those who believe and
expect the market to go up—and consequently buy— and those that
believe the market will go lower—and consequently sell.
If there is no balance between the two forces, one side will gain
dominance over the other. As prices move farther and farther away from
the weak group, the emotional pain of admitting they are wrong will be in
direct conflict with their need to avoid losses. Eventually, one by one they
will lose faith in their position and liquidate their trade, adding to the
momentum of the dominant force.
The prevailing force will continue to dominate until there is a general
perception that prices have gone too far and are out of line with other
related factors. The members of the dominant force will have to switch
sides to liquidate their positions, creating momentum in the opposite
direction.
As individuals, if we do not have the strength actually to move prices in
the direction we would most benefit from, then the next best thing is to
learn to identify and align ourselves with the side that has established
dominance until the balance shifts and again align ourselves with the side
establishing the strength.
