“The Tao” means different things to different people. It’s generally thought to have been introduced to the world sometime around 500 B.C. in China. Since then, millions of interpretations have been contemplated. In modern times, everyone from the Dali Lama to Willie Nelson has offered their take on it.
What exactly is “The Tao?”
It’s usually translated directly as “the way” or “the path.” But most who have studied it agree that it also refers to “the Source” behind everything. The unseen force in the universe that essentially makes things happen.
A Christian theologian would probably see similarities between the Tao and the “Holy Spirit.” Physicists likely see it represented as “energy.” Self-help gurus often compare the Tao to “consciousness.” Luke Skywalker called it “the Force.” Had Michael Jordan delved into the world of metaphysics, he probably would have referred to the Tao as “the zone.”
The overriding message of the Tao is that you’re either flowing with it or against it. You’re either in the zone or out of the zone, using the Force or blocking the Force. However you want to describe it, the point is that you feel good and peaceful when you’re flowing with the Tao and you feel bad and fearful when you’re trying to fight against it.
What does this have to with stock trading?
Actually, understanding the philosophy of the Tao is nearly identical to understanding the principle of trading stock market trends. Stock traders like Nicolas Darvas and Jesse Livermore, had they been students of the Tao, would have very likely started referring to the Tao as “the trend.”
Look at any long-term historical stock chart. It can be a single stock or a market index. It could even be a commodity chart or a chart reflecting Real Estate prices. What do you see when you look at these charts? Peaks and valleys. Ebbs and Flows. Ying and Yang. When sentiment is good, prices rise and the chart trends higher. When sentiment is bad, prices fall and the chart trends lower. Not exactly rocket science and not exactly profound, is it?
Yet, this is the way the world, as a whole, has always worked. Peaks and valleys along the way, but always progressing in the long run. As a trend trader, it is your job to get in with the trend. Up or down, you need to be flowing with the trend, riding it in the natural direction it’s already moving in. You can’t fight the trend and it does little good to try to predict exactly when the trend will change. All you really have control over is letting go of your ego and simply riding with the trend wherever it goes. You have to release your fear and your greed. You have to submit to the natural flow of the market and stop trying to force it in one direction or the other.
Instead, to trade the trend, you have to focus completely on what is actually happening right now, in this very moment. Once you recognize the trend, you simply follow it where it wants to go. As a trader, that means letting go of any bias to being long or short. If the trend is higher, we go long. If the trend is lower, we go short. We benefit in either direction, as long as we’re riding the correct direction of the trend.
The stock market’s trend is as natural as nature itself. It will go wherever it’s intent on going and you can save a lot of frustration and fear by simply understanding this concept and enjoying the ride.
When you look at trend trading in this light, you can see that maybe there really is something to “Trading the Tao.”