Three Phases

Different phases of a market.

I love analogies and abstract objects. I love to look at the world of big business like a jungle. To explain my thoughts I will start by introducing three animals: the bull, the bear and the pig. It is my intention to use these animals as players within an abstract field. There are other animals with whom we will also play games. These animals will be introduced in due course.

The objects which these animals represent are not just individual human beings, they also represent herds of humans. By definition a herd is a large group of mammals living and feeding together, esp a group of cattle, sheep, etc. Humans are, without a doubt, herd animals, and as such they love to do things to fit into their herd.

One interesting aspect which can be seen in the herd behaviour of humans is the average behaviour of an individual human being is different to that of the behaviour of the herd. This is exacerbated when the herd is not being led. A riot is an excellent example of irrational human behaviour. A seemingly decent, honest, human will behave in a very unexpected way during such an event, upturning cars, burning tyres in the street, smashing shop windows. The human may not even care if it is burning down the local supermarket/farmhouse and subsequently it's only source of food. The behaviour of an individual is totally irrational when the herd takes control. A very important point to take note of is that while the individual humans behaviour might be unpredictable and irrational, the behaviour of the herd is far more predictable. This is somewhat analogous to the predictability of classical physics breaking down at the atomic level due to quantum physics.

Anyway, before I make an ass of myself and display a complete lack of knowledge when it comes to physics, we should get back to the three animals...

Lots of humans refer to markets as bull/bear markets. I'm not sure if this is the case. I prefer three phases: bull, pig, bear. These phases can be seen as moving up/down/sideways in a simple price/time graph. When these phases combine there is an overall cyclical movement with the internal movement always being up/down/sideways. It is important to note that the numbers on this graph only serve to illustrate the general movement, they are not relative.


1) The Bull Market (Dark Green) - All businesses are going up, growth is everywhere. It doesn't matter which business you get into, as long as your position is a diversified position you will win along with everyone else. Just like Hot Chocolate once sang; "everyone's a winner baby".

Take special note of the Raging Bull Market as well, this can be seen as a final uplift at the very end of the Bull Market just before the Pig Market. I will talk about this in due course.

2) The Pig Market (Black and Yellow) - This is a very dangerous time for business, rapid market contractions take place. The greedy raging bulls have become fat and slow. They have morphed into pigs. They are easy prey for... The Bears!

3) The Bear Market (Bright green) - slow, methodical, fundamentally solid tactics. The bear has its day when markets move down and then sideways. Bears derive profit in all markets. The bear will be able to find value in any market. The bear will walk behind the bulls as it is not as aggressive. The bear may be a slow cautious creature, but, it is not an animal to play games with, for the bear can strike you down with a swift strike from its paw.

Having introduced the first three animals I will now retire for a time and when I return I shall give my thoughts on the behaviour of these three animals; with a supplement of techniques used to identify them.