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.Where is that point for you? Is it inside the range of recent priceaction? If so, that is a great clue that you need either to reduce your lever-age and allow a larger swing in price or to stop waiting for confirmation.We talk about leverage and forced liquidation in Part II, but it is importantto note that both issues are involved in the psychology of initiation andliquidation. P1: OTAJWBT329-c05 JWBT329-Jankovsky July 9, 2010 11:23 Printer: Yet to come P1: OTAJWBT329-c06 JWBT329-Jankovsky July 24, 2010 7:39 Printer: Yet to comePA RT I IThe Theoryof TimeCompressionime compression is a factor of how people behave when stimu-lated a certain way.There is no certain way to know preciselyTwhat people are going to do until they do it, but one thing is cer-tain: They will do something.Of course, all of this activity is basedon perception, and perception is what makes markets move.Whenpeople believe there is an opportunity, they will do something; whenthey feel they are under threat, they will do something.All the vari-ous kinds of reactions people can have to what they feel is an impor-tant event for them all boil down to whether they feel under threat orfeel there is an opportunity.There is no reason to do anything with-out one of these two motivating perceptions.Once those perceptionshave been processed through our conclusion-making software, it re-sults in an order being placed.A lot of studies have been done on motivation and perception.Most studies continue to divide actions done by people into either adesire to gain pleasure or a need to avoid pain.No matter how youslice those two basic motivators, everything we as humans do fallsinto one of those two categories.Either we want to get something we49 P1: OTAJWBT329-c06 JWBT329-Jankovsky July 24, 2010 7:39 Printer: Yet to come50 THE THEORY OF TIME COMPRESSIONfeel is positive for us or we want to avoid what we feel is negativefor us.In the markets, this would naturally be defined as a profit ora loss.When attempting to define a time-compressed market, it is criti-cal that you always remember that someone somewhere is placing anorder into the market with the intention of receiving pleasure (profit)or avoiding pain (loss).There are no other motivators than these two.In this section, we are going to look at how time compression iscreated based on the perceptions held by the people participating inthat particular market event.It doesn t matter if the event is marketrelated or not; when groups of people are stimulated a certain wayby events around them, they will behave in a predictable way: eitherto gain pleasure or to avoid pain.As this plays out in the markets iswhat we are interested in although time compression happens aroundus all the time in various forms. P1: OTAJWBT329-c06 JWBT329-Jankovsky July 24, 2010 7:39 Printer: Yet to comeCHA PT E R 6TheDevelopmentof the TheoryYou re just going to have to wait in line. The nice lady at the Departmentof Motor Vehiclesime compression is what happens when everyone wants to dothe same thing at about the same time for roughly the sameTreasons.Time compression is around us all the time.In fact,it is a natural process that is caused by the very basic fact that thereis more than one person living on the earth today.You cannot getthrough your day without seeing some sort of time compression atwork sooner or later.For example the lunch rush at a restaurant.At 11:00 A.M., thenumber of people trying to buy lunch suddenly jumps from three orfour to maybe several hundred if the restaurant is big enough andwell-known enough.In this case, the restaurant knows this and plansthe day accordingly for this eventual change in the number of patrons.The cooks arrive and start making the salads early, the servers startaround 10:00, and the manager makes sure that someone has gottena starting bankroll for the cash register.None of this is happening at8:00 in the morning or at midnight the night before.The restaurantknows that it will make most of its money between 11:00 A.M.and2:00 P.M.; it plans for the staff to start as this need arises, and not be-fore; to control costs, it runs regular specials to move older productsto reduce losses, and so on.The restaurant can t make a cost-control51 P1: OTAJWBT329-c06 JWBT329-Jankovsky July 24, 2010 7:39 Printer: Yet to come52 THE THEORY OF TIME COMPRESSIONmodel or a profit model if it takes its daily receipts and divides bythe total number of hours it is open; it must plan for time compres-sion in some fashion or risk not having enough staff, food, or changeavailable when the opportunity to make money is there.The restaurant has found a way to exploit time compression.Itworks fairly well to keep people employed, customers happy, and thebank account growing.What kind of restaurant owner would ignorethis eventuality? Restaurant owners don t it is the very nature ofthe restaurant business to be available when people want to eat.Sure,you can be available at all times, such as a 24-hour diner, but in thatcase, there will be three cases of time compression at work every day:the breakfast rush, the lunch rush, and the dinner rush.That s whenpeople want to eat.The rest is incidental to running a restaurant.Time compression takes many forms in all parts of our lives.Ifyou want to be at your desk in the city by 8:30 A.M., just like every-body else, then you will likely get caught in rush-hour traffic if youcommute from the suburbs.You could leave a little earlier and missthe traffic jam created by everyone else wanting to be at work by 8:30,but you don t; you know how much time rush-hour traffic takes fromyour day, and that is how you make it to work each day.So doeseverybody else.The form of time compression that always amazes me is whathappens on April 15 every year here in the United States.That iswhen every citizen must have his or her yearly income tax return filedwith the Internal Revenue Service.Every year, attendance at sportingevents goes down, movie theaters are half full, restaurants are empty,and dogs aren t walked between April 10 and April 15.Almost everysingle tax-paying citizen is at home trying to finish the tax return be-fore the deadline.The post office is even open until midnight on thefifteenth with people outside taking returns from cars that drive byso that people won t pay a penalty for being late.What amazes meis how many people wait until the end even knowing that they havea refund due.Wouldn t you want that cash now? I have my incometax form filed with the IRS every year before the end of January.If Iam getting a refund, I have it in three days instead of three monthsbecause no one at the IRS has anything to do but my return; no oneelse has filed yet.There are examples of time compression at work all around usevery day.The grocery store is packed between 5:00 P.M.and 7:00 P.M.as people on the way home from work stop to get a quart of milk; P1: OTAJWBT329-c06 JWBT329-Jankovsky July 24, 2010 7:39 Printer: Yet to comeThe Development of the Theory 53there are long lines at the hot night spot around 10:00 P.M.Saturdaynight; the beach is packed at 2:00 P.M.on a sunny Sunday.The listgoes on and on.In fact, in order to keep society functioning and avoid the delaysthat time compression can impose on us, people go to great lengthsto avoid it or profit from the lack of it.There are early bird specialsat restaurants, midnight bowling leagues, and special markdowns atsome department stores if you shop after 8:00 P.M., for example
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