The Bandwagon Theory:
A Glimpse At How The Market Really Works
(exerpt from Tools & Tactics For The MASTER DAYTRADER
by Oliver Velez and Greg Capra) - some of the best reading you'll ever do!
Imagine a bandwagon that is rolling forward at a quickened pace. Music that is very pleasing to the ear is being played from speakers from each side of this bandwagon, and a few people on the back of the wagon are partying, having the time of their lives.
The music, loud and clear, starts to attract many other onlookers that happen to be idly standing on the sidelines. These onlookers, unable to resist the sweet sounds being played, run to join the party that seems to be going on.
Progressively, more and more onlookers jump on the back of this bandwagon, and those few who were enjoying the first phase of the party begin to leave.
As the crowd of the new party animals on this bandwagon grows larger, the bandwagon finds it harder and harder to move forward at the same pace. It slows, enabling more and more late onlookers, witnessing the great fun, the chance to jump on.
The crowd grows even larger. Larger and larger the crowd grows, until the bandwagon, heavily laden with bodies of drunken party animals, can no longer move forward.
It finally comes to a complete stop.
Now that the bandwagon is at a complete standstill, more people jump on. And why not? At this point, joining the party is easy. Absolutely no work is required, for individuals wanting to join the crowd no longer have to run to jump on board.
But the nature of the bandwagon is to move forward. It's motionless state is unnatural, and therefore cannot last. It tries to move forward but can't.
The crowd piled on back is too large. It must free itself of the heavy burden. And it does.
It quickly shifts itself into reverse, and jolts backwards, knocking a few of the party animals off the back.
The music stops.
Puzzled faces from the crowd begin to emerge. Before anyone figures out what's going on, another backwards jerk takes place, only this one is move violent. Another large group of people get thrown off the back.
Now reality sets in.
The FUN has turned into a NIGHTMARE of EPIC proportions, and panic begins to run rampant. Some decide to jump off to their deaths. Another thrust backwards sends an even larger group of drunken, offbalance people, hurling to the muddy ground.
It doesn't stop.
The jolts backward continue, each successive one more violent than the last. At this point, only a few die-hard dwellers are holding on, their very lives hanging in the balance by a very thin thread.
Failing to be completely free, the bandwagon angrily puts the pedal to the metal, and this final thrust backward is so vicious that it's front wheels lift high off the ground, momentarily suspending the wagon in a perpendicular position.
The last of the hangers-on crash to the ground, broken and maimed to no end.
At this point, a new group of onlookers emerge from the nearby woods. They are clean and serene. Each move they make is deliberate and powerfully energetic, for they did not take part in the tragedy that just transpired. Or did they?
A few of the dejected souls lying on the ground take a closer look, a look that reveals something very interesting.
This seemingly new group is not new at all. It is the same group that was seen quietly exiting the party before it came to it's violent end.
An even closer examination by a few more beaten-down onlookers reveals something even more stunning.
This group not only exited the party early, they were the originators of it!
"My God," someone exclaims. Paralyzed, and unable to move freely, all these dejected souls can do is watch, as the masters of the game go back to work, again
No sooner does this bandwagon's wheels hit the ground, than this professional platoon bolts for the wagon. In a flash they are onboard. Easy
The bandwagon, now free of the larger crowd, can move forward freely and gracefully, comfortably carrying the more astute group with it.
It's pace quickens, and before long a smooth elegant stride is in place. After a few more miles of uninterrupted movement, someone from the masterful group flips on a switch, and suddenly the loud sound of entertaining music starts up again.
Someone yells, "OK everyone. Here they come. Let's do it again."
Within moments, those who were the former victims of the backward crash become interested again. The music almost calling them from the grave.
And once more the never ending cycle repeats.
(the hidden wisdom embedded in these metaphors, will allow you to claim a higher level of understanding and mastery at the game of the market).
Happy trading all and hope you enjoyed this long exerpt!