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PRINCIPLES FOR STUDY OF THE MARKETS' ENERGY
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As pointed out earlier, one of the primary contributions of the new science of chaos is that it examines "natural phenomena." One of Mandelbrot's pregnant findings was that the fractal dimensions of rivers are similar to those of commodity markets—an indication that the markets are more a function of nature than a process designed by the left hemisphere of the human brain. Our view is that economics, fundamentals, and mechanical and technical analysis do not draw an accurate map of the market's behavior. If the markets were linear, there would be fewer losers—particularly in view of the high intelligence of the average trader. If traditional logic worked, there would be less complaining and more narratives of success.

The science of chaos provides three primary principles for study of the markets. Collectively, these principles govern the behavior of energy. From a physics standpoint, everything in the universe is energy. These principles are discussed fully in Robert Fritz's book, The Path of Least Resistance (1989). Let's try to capture their key meanings here.

1. Energy always follows the path of least resistance. A

commodity market is like a river. As it moves through each trading minute, it takes the path of least resistance. That's what we all do—not only the market, but you, me, and everything in nature. It is part of the inherent design of nature. While a river is running downstream, its behavior is determined by the path of least resistance. Gravity is energizing it as it flows around rocks and along curves in the riverbed. You are reading this sentence at this time because this was the path of least resistance when all your time management factors were examined. You are sitting wherever you are because that location was on your path of least resistance. In a market, you will exit from a losing trade when the pain of losing one more dollar becomes stronger than the pain of saying that you were wrong in taking the trade. The path of least resistance wins again.

2. The path of least resistance is determined by the always
underlying and usually unseen structure. The behavior of a
river, whether it is calmly flowing downhill or creating rapids,
depends on the underlying structure of the riverbed. If the
riverbed is deep and wide, the river will flow calmly down hill.

If the riverbed is shallow and narrow, the riverbed will create rapids. The behavior of the river can be accurately predicted by examining the underlying riverbed.

Suppose you needed to get up and go to the bathroom now. You would most likely walk through one or more rooms or doorways. Why wouldn't you just take a "straight-line" course through the walls to the bathroom? Because you learned long ago that you injure yourself when you walk into walls. As you walk toward the bathroom, you most likely are unaware of how your behavior has been determined by the architect who designed the locations of the openings and by the builder who mounted the doors in their present position. The architect and builder gave your rooms their underlying structure.

In the same way, the underlying structure of your life determines your approach to trading. Whether you are aware of the structure or not, it determines your behavior and your reaction to any movement in the market. We will examine this structure in detail in Chapter 9.

Many traders who keep repeating their trading behavior produce losses. They often feel powerless and frustrated. They attend seminars, read books and underline appropriate passages, study NLP (Neuro Linguistic Programming), have private sessions with market psychologists, and then find themselves back in the same old losing rut. If that has hap­pened to you, you simply haven't changed your underlying structure.

If you make only superficial changes, nothing has really changed. Permanent change happens only when the underlying structure is changed. Chapters 6 through 10 examine the underlying structure of the market and advise on how to recognize any change in that underlying structure. Chapters 11 and 12 will help you probe your personal underlying structure. When your personal underlying structure is aligned with that of the market, winning becomes the path of least resistance. As a trader, you always know when you are trying to go against the path of least resistance. Tension immediately builds up in your body and mind. If you are tense about trading, you are not "floating down the river." Once you learn to determine the underlying structure of a market, you can make peace with the behavior of the market and simply "float like a butterfly, sting like a bee."

3. This always underlying and usually unseen structure can be discovered and can be altered. Most traders seem to be trying to change the course of the market/river by using bailing buckets. That task is impossible. However, if they were to hike up the river to its source, they might be able to change the entire course of the river by simply moving a few rocks so that the water flows in a different direction. Sometimes a slight change in cause can produce mammoth changes in behavior. This possibility is not addressed by linear Newtonian/Euclidean physics.

You can change the flow of your life and your trading. To do this easily and permanently, you must work with the underlying structure rather than the behavior produced by that underlying structure.

Once a new and different structure is in place in your trading, the overall thrust of your trading, like the current of a river, builds momentum and aids you in getting the results you want.

The basic concept derived from these three principles is this: you can learn to first recognize the underlying structure that is driving your trading and then change it so that you can create what you really want from the market.

To be able to recognize the underlying structure, we need to examine more closely the structure of structure, the keystone to all our results in trading and in life. Later in the chapter, we'll encounter the two types of underlying structure that determine your future behavior and the personality of the path to your goals.

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