1) Most intervention is against the trend. It is best to ignore it completely at the outset (and stay with the trend).

2) In due course sustained intervention will absorb all the opposition, including a lot of speculative opposition. This will show up in various sentiment gauges (see below).

3) At this point the trend will be on the turn. And the imperative rule for intervention in the same direction as the trend is to go with it at all times.

That lot boils down to a very simple formula. Ignore all intervention unless/ until it’s in the direction of the trend, in which case go with it.

The key to trading financial markets successfully is to be on the right side of the “big moves”, which are often measured in years. That’s easily said, but to do that we have to be able to locate the start of the big move and also its end. In the currency markets, as with all financial markets, the extremes of the big moves are invariably attended by certain psychological characteristics, reflecting degrees of hope and fear among the players.

But the big moves –or underlying trends –are composed of smaller multi-week or multi-month moves. And the extremes of these moves too are marked by the same psychological characteristics or behaviour patterns. So there may be no way of knowing whether a turning point marks a change in the major underlying trend or just a correction which leaves the main trend intact. Moreover, these minor moves are usually made up of smaller multi-week or multi-day moves with similar attributes. And you can go on. Within a single day, you find the same pattern of alternating fluctuation between bullishness* and bearishness* measures in hours and minutes and even seconds.

The mathematician Benoit Mandelbrot coined the word ‘fractal”* for this phenomenon of patterns that contain similar patterns within them, some– times ad infinitum. It has also been called “ scaling” , because of the way such patterns recur on different scales, up and down the dimension spectrum. The fractal phenomenon seems to lie at the very heart of nature –within the genetic process itself –though one of the first places Mandelbrot saw it was in series of soybean prices.

In all markets, price extremes are usually attended by a consensus that the trend, be it up or down, will continue; and by a peak of speculation in line with the trend. Hence the excruciating paradox of financial markets,

that sentiment is most bullish at the peaks when prices have only one way to go which is down; and most bearish at troughs vice versa: at the top there’s no– one left to buy, and at the bottom n0-0ne left to sell. This paradox is absolutely central to the working of all financial markets and we need all the help we can get to understand it so thoroughly that it becomes part of our nature. The more bullish things are, the more bearish they are. Bullishness is born as hope in the midst of despair. Hope swells to confidence and confidence swells to euphoria, and the process contains the seed of its own destruction and the birth of its opposite, fear. Fear is nurtured by falling prices and the two feed on themselves until they swell to despair. And so the cycle is completed –and ready to begin again with the birth of hope. This is both the way things are and the way they have to be. We haven’t understood the process until we have grasped that. The despair creates the price trough: the price trough creates the despair. The price extreme is the definition of the extreme of despair, which is in turn, by definition the moment when hope comes to prevail; hope feeds and is fed by rising prices until the peak of price and euphoria leave prices with only one way to go, which is down. This circular process underlies every price fluctuation in free markets from the smallest one measured in seconds or minutes to the largest measured in years or decades. So it has always been and so it will always be, because it must be. The ancient Chinese symbol called T’ai-chi T’u or “symbol of the ultimate reality”, more commonly know as the yin yang symbol, is delightfully appropriate to the way markets are – and uncannily appropriate to the way currency markets are. It is up to each of us to see anything in it we find helpful. This exquisite symbol of the Tao* works at many different levels, in many dimensions. You choose your own levels and dimensions. We can see the light and the shade as representing opposites like bullishness and bearishness, hope and fear, sympathy and antipathy, consensus and dissension, speculation and prudence, euphoria and despair, illumination and benightedness, yin * and yang*. We can see the thin and thick ends of each tadpole as representing the beginning and end of something; the wax and wane; the birth and death. The light is born out of the pitch of the dark, and the dark out of the fullness of the light: the small circles within each half represent the seed of the other half. The whole is a circle, with no time scale. It can be accomplished in seconds or

in years. It goes on and on, round and round, scaling. This is precisely the way of markets and market sentiment. It is the Tao* of markets. Any time you should find yourself assailed by extreme confidence or despair, remember the T’ai-chi T’u symbol. Or take a look at CB’s logo, in which the dollar sign becomes the interface between the light and dark. In securities and commodity markets, you have a cycle of bullishness and bearishness as prices rise and fall; and speculation (and activity) is notably greater at price peaks than at troughs. But in the currency markets, there’s no difference between peaks and troughs. A peak in the dollar is a trough for the pound, DM or whatever, and vice versa. Hope for the dollar equals fear for the other currencies. They are two aspects of the same thing – just as the yin and the yang are two aspects of the same thing (see Glossary). So, as one would expect, speculation in the currencies tends to be similarly extreme at both peaks and troughs in the dollar.

This is something we have to remember when it comes to analysing the way of the dollar. Price cycles in the dollar, as the symbol may help us see, can be ana lysed exclusively in terms of the ebb and flow of sentiment among participants. But we need a system to help us gauge where we are in the cycle of hope and fear. And this system must of course draw on the data that are available for the currencies, CB has classified four gauges of sentiment. They overlap so some degree; they are arbitrary; and there is no pretence that they are exhaustive, let alone perfect. But they have served well and stood the test of several years and several multi-year cycles.