Relationship Trading

I recently heard an ad touting a bank in which a sweet female voice was saying that breaking up with the old bank wasn't that difficult, that she was much happier with her new bank. This certainly gives new meaning to "relationship banking"! I think the ad works because it deals with things most people can relate to - relationships - as opposed to overdraft charges or loan point discounts. How about "relationship trading" then? In trading, human emotions and action are reflected in charts, but most people can't relate to charts the way they can relate to relationships. Lets' try:

Reversal

A strong uptrend does not reverse in a day; it takes a lot to break it. Investors get careless, assuming the good times will last forever, ignoring occasional warning signs. But cracks begin to appear under the surface: excessive breakouts of so-so stocks, high volume distribution days, excessively enthusiastic predictions... The uptrend begins to sputter. The market is not yet falling but it is no longer rising so we believe that things are still fine, that it is just a brief pause on a long upward journey. Then one day - wham! - the market breaks down on strong volume. For a while longer we refuse to believe that the good times are over, looking for every sign that the uptrend will soon resume. But it is over.

Same in relationships: strong relationships can take a certain amount of abuse. As long as things are moving in the right direction, we tend to overlook temporary setbacks, counting on an endless supply of goodwill and forgiveness. We start taking the other person for granted. We ignore the danger signs. Then one day - wham! - we have a bad break. The relationship is no longer what it used to be but we refuse to acknowledge that, wishing that things would go back to where they were. But they just won't.

Breakdown

Some stocks are bad investments, and we know that but just refuse to let go, clutching at every glimmer of hope, cheering every bit of (not so bad) news. The stock flatlines on a long-term support line, refusing to go down. Then one day - wham! - it breaks below the long-term support and starts a long journey into oblivion. That last piece of bad news was too much for it to bear.

Same in relationships: both parties know that things are bad but just refuse to let go, trying one patch after another. For a while it seems to work, or at least keeps things from falling apart until one day both parties realize that it's over, that there is nothing left, and the "relationship" turns into a nasty divorce fight.

Breakout

The news is getting better but the stock just won't move. Then one day - wham! - the stock breaks out on a strong volume and stages a strong run.

Same in relationships: both sides enjoy being together; there are a lot of positive things happening but neither seems to be willing to make the next logical step. Seems like the relationship has reached a permanent plateau. Then one day it all starts happening: a diamond ring, wedding bells, a honeymoon - all of a sudden, things are moving at a breathtaking pace! The future looks bright, and it's going to be a while before the first cracks appear... but we have already covered that part.