The market's behavior can be defined as the collective action of individuals acting in their own self-interest to profit from future price movement while simultaneously creating that movement as an expression of their beliefs bout the future.

 

Behavior patterns result from the collective actions of individual traders owing one of three things: initiating positions, holding positions, and liquidating positions.

 

What will cause a trader to enter the market? A belief that he can make money and that the current state of the market offers an opportunity to enter into a trade at a price level that is higher or lower than the price at which it can be liquidated.

 

What will cause a trader to hold a position? A sustained belief that there is still potential for profit in the trade. What will cause a trader to liquidate a trade…? A belief that the market no longer provides an opportunity to make money. This would mean in a winning trade that the market no longer has the potential to move in a direction that will allow the trader to accumulate additional profits or that the risk of staying in the trade is too great in relation to the potential for additional profit.

 

In a losing trade, the trader elieves that the market no longer has the  potential to move in a direction that will allow him to recover his losses or the trade was a calculated risk in which a predetermined loss level was set in advance.

 

If you look at any price chart, you notice that over a period of time, prices will form patterns in a very symmetrical fashion. These kinds of symmetrical-looking price patterns are not an accident. They are a visual Representation of the struggle between two opposing forces—traders squaring off, so to speak, taking sides and then having to switch sides to Liquidate their trades.