Deciphering the art of market meditation

CK Narayan

Van K Tharp, the well known authority on trading system applications, is always quoted as saying that people don’t trade markets- instead, they trade their beliefs about the markets. This is very true and I have been maintaining a similar slogan for a very long time. Back in the days when I used to handle the FII desk at a large broking house, my header for my Bloomberg id used to be, Perception of the reality is the reality. It still continues to remain my favorite saying – about the markets as well as about life. We create our own realities, our own worlds and those are actually created from how we perceive whatever is around us, whatever is shown to us or whatever is experienced by us at different times.

A classic case of perception being quite different from the reality happened recently in the markets in the last week. The data that was released around last Friday was certainly among the most discouraging we have seen in recent times. After all, capital account deficit ballooning to 4.2% of GDP is no sneezing matter. In addition there were a slew of other data that too indicated that times ahead were going to be tough. Looking at all that data one would have got so scared that you would be waiting for the market to reopen the next day just so that you can dump your stocks! But what the market did was a complete antithesis of what was expected! It shot up with a gap and hasn’t looked back till now! What went wrong? Or did something go wrong at all? Only one thing is for sure- if you shorted the market on the basis of the data, you certainly went wrong. And how!

On the other hand, there have been a lot of people who are feeling very bullish based on the fact that the FII flows have remained only very, very mildly negative despite all the doom and gloom type news around. For them it seems rather inexplicable that the market is not going higher! Many of them reconcile, then, stating either Europe to be a reason or the INR or some such. But the minute the market goes higher, they are back with their favourite flow theory!

It is only perceptions that can differ. The glasses we wear to see the data that presents itself is entirely our own manufacture. Those that are bound by unshakable rationality are still waiting for lower Nifty. Those that are caught up in the repeat of the January rise pattern are aching for new highs. The rest of us are somewhere in between.

Once we are able to focus on what the market is doing without seeking rationalizations about why it is doing what it is doing currently, our mind shall come to a rest and then, we shall truly be able to see what the market is really doing. This is market meditation and life in the market improves if we can learn this! Unfortunately, Patanjali doesn’t have a text on it. So we will all have to write our own!

(CK Narayan is MD of Growth Avenues. Views expressed are personal. To get trading recommendations from CK Narayan, click here.)