Praise for Trading from Your Gut

FIGURE 4.3
Buyer and seller anxiety versus price 
Note how the price valleys correspond to the transition point
where buyer anxiety (or desperation) begins to surpass seller anxiety
From the Library of Daniel Johnson

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(or desperation). Similarly, the price peaks represent the points
where seller anxiety overtakes buyer anxiety.
The quantity of buyers versus sellers doesn’t drive
the price; it’s the relative desperation
of those buyers and sellers.
Some people think that prices go up because more buyers exist
than sellers. This is not true. The number of buyers and sellers is
always equal. Every trade that takes place involves one buyer and
one seller. At the end of the day, the volume represents the total
number of shares transacted; this is equal to the number of shares
bought and the number of shares sold. The quantity of buyers ver-
sus sellers doesn’t drive the price; it’s the relative desperation of
those buyers and sellers.
Figure 4.3 is unrealistically synchronized. Rarely are the cycles
exactly the same duration. Figure 4.4 shows a more likely scenario. 
Note how the cycles are no longer of uniform length. At some
point between B and C on the graph, the cycle time was shortened.
This means that buyer anxiety grew more suddenly than in the pre-
vious cycle.
In reality, trading cycles are not at all uniform. In the real world,
both the timing of cycles and their magnitude vary. Buyer anxiety
during the up leg of a cycle is rarely of the same magnitude as seller
anxiety during the next down leg. Sometimes the length and dura-
tion of one direction are markedly shorter than for the other
C
HAPTER
4 • T
HE
S
TRUCTURE OF THE
M
ARKETS
69
From the Library of Daniel Johnson

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direction. In a rising market, buyer anxiety exceeds seller anxiety on
average. In a declining market, seller anxiety usually exceeds buyer
anxiety. These variations result in price action that has the character-
istic ups and downs of market cycles.
70
T
RADING FROM
Y
OUR
G
UT
100.0
105.0
110.0
107.5
102.5
A
B
Buyer
Anxiety
Seller
Anxiety
C