The following is a guest post by Darrin Donnelly, editor of DarvasTrader, the world authority on Nicolas Darvas System Trading.

“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.”

For more on trend trading with the Nicolas Darvas System, please visit DarvasTrader.com

11 Responses to “Trading with the Tao”

  1. Mobile Guru Says:

    The Trend is your friend but knowing when to get off the bus is a must.

  2. Dan Kowalski Says:

    I’m a newbie stock trader, and a student of Buddhism. And this piece gave me a huge grin and immense pleasure. Right on. Keep up the good work!

  3. Yogikeung Says:

    Although fun to read, and perhaps somewhat enlightening, but I must confess, it definitely “does not” make me a better trader. Its easy to say ride the trend, or the trend is your friend, and so on and so on,…but when I read this, I think it can cause more harm than good( at least from my perspective). Harmful because it makes me believe that if I just follow the trend and study the Tao/Zen, do some yoga and meditate I will be a good trader and make money. Man I wish it was that easy. Bottom line (at least for me) these one liners like “I Trade therefore I am” can be more harmful than good.

    Namaste

  4. Mobile Guru Says:

    Namaste,

    I had the same thoughts. When I studied technical analysis (self taught) I really came at it from it being another tool to help make good investing decisions. Getting on and off the bus on any investment makes or breaks you. I am much more of a true fundamentalists that rarely buys stocks that I don’t believe are going to do well long term in growth of revenues and earnings. I don’t mind being out ahead a few years and waiting as that is where I think the biggest gains are to be made. Knowing what your objecives are going into any investment is the key for me. Have a great day.

  5. Darrin Donnelly Says:

    @ Dan:
    Thanks, I really appreciate that!

    @ Namaste:
    Yes, if it were “that easy,” EVERYBODY would be making millions in the markets. Recognizing and identifying trends is a skill that requires years of study. It won’t happen overnight and it won’t happen for you if you’re not willing to put in the long hours of work to understand it.

    The point of the article is to appreciate the fact that trends have occured since the beginning of time and they will continue to occur again and again for as long as the stock market exists. Fighting the trend will result in bad trades. Following the trend correctly will result in fortunes made. I was simply showing the parallel between this market philosophy and the philosophy of the Tao.

    As for doing yoga, meditating, and studying Zen, I have no idea if that will make someone a better trader or teacher or salesman or any other profession. But, a lot of people do feel it helps them focus better and face the reality of a situation more calmly. I’d try to find what works best for you personally.

  6. jeff pierce Says:

    Hey Yogikeung,

    Thanks for jumping out and taking the opposite view. While I agree it’s more of a generalization about a way of life, and a way to trade, there are always insights to be gained from simplicity. You’d be surprised how many fight against the trend.

    Take Christian from Perfectstockalert.com The entire rally off the Sept lows he remained bearish in his stance and failed to recognize the obvious bullish implications of what was going on. He just recently (last Friday) has started to come around to the idea that this market could move higher.

    Consequently…I’m beginning to wonder if that in itself is a contrarion sign that the market is doomed…lol

    Hopefully you’ll share some more of your opinions and insights so we can all learn.

    Have a great day.

  7. jeff pierce Says:

    MGuru

    Agreed. TA, your screens, news sights, even this blog are only parts of the puzzle. You must put it all together and hone your craft. Trading is an art.

  8. jeff pierce Says:

    DT,

    Meditating will make you a better trader. I have the beginnings of a great post in my head about how it does, and does so scientifically proven….stay tuned!

  9. Yogikeung Says:

    Dan, I went over to Darvastrader.com, I like it!, the site is well thought out and shows to offer some very solid content. I totally agree with your follow-up :-))
    Thank you for taking the time to share.

    Jeff, I’m a frequent visitor to your site. Always learn something from you.

    No doubt trading is a life long process that requires hard work (to say the least)

    Cheers

  10. Daniel Says:

    Hi Darin.
    I liked your article. Whether we want to look at the indefinable flow of human consciousness using Gaussian distribution with fractal geometry, TA and FA, whatever natural golden means we may see, Sidharta taught me in the Diamond Sutra that the real stuff is indefinable. I think you may agree with this? Action, non-action, ji and ri, all these things we learn in life. We can learn from zazen, Alan Watts, yoga, mathematics, quantum theory etc. ad infinitum. All things in the universe are in constant motion, are they not? Those who read your article should take head at the deep understanding and Zanshin(awareness) of Tathagata(suchness) you have attained. And although to the typical western linear/binary logic these eastern ways seem a bit groundless and airy, the understanding of them comes from experience, study and quietitude. They cannot be taught. One has already met ones greatest master. I am parallel with your shin-mu-shin, oh, nameless Darin. Well, done. This kind of article is light on the subject. The Way is in all things and it’s how my sacchi decide to translate whether I must enter or exit, as in Aikido or kenjutsu. Musashi said, “Life and death are but seperated by an inch.” And he said, “Don’t hold back trying to save your arse.” Thank you for another element of confirmation. Isn’t
    synchronicity a beautiful suchness.
    Daniel ( artist and trader )

  11. Raleigh Lee Says:

    I would like to invite you to be a guest blogger on my website.

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