Wei Liaozi (尉缭子) Module 2: The Assessment of the Multitude (制分)

"Now, the nature of the people is to die for what they desire and flee from what they fear. If you understand what they desire and what they fear, you can control the multitude." — Wei Liaozi, Chapter 2: The Assessment of the Multitude (制分)

In Module 2, "The Assessment of the Multitude" (制分), Wei Liao dives deep into the psychology of the masses. He views the army not as a single entity, but as a collection of human beings driven by primal emotions: Greed and Fear.

In the stock market, understanding "The Multitude" means understanding Market Sentiment. The retail trading crowd acts exactly like a frightened or overly enthusiastic ancient army. If you know how the crowd reacts to fear and greed, you can take the other side of their trades and profit.

Controlling the Multitude: Greed and Fear

Wei Liao understood that logic rarely moves a large crowd; emotion moves a crowd.

1. Dying for What They Desire (Euphoria and FOMO)

• The Ancient Text: "The nature of the people is to die for what they desire."
• The Wall Street Translation: In a bull market, retail investors become gripped by FOMO (Fear Of Missing Out). They see their neighbors making money on crypto, tech stocks, or meme coins. Driven by the desire for quick wealth, they abandon risk management and charge recklessly into the market at the absolute top, ultimately "dying" financially when the bubble bursts.
• Actionable Rule: When the multitude is screaming for the same asset, and financial tips are being given by taxi drivers and barbers, the crowd is blinded by desire. This is the moment for the professional trader to quietly sell into the strength. Do not chase the parabolic spike.

2. Fleeing from What They Fear (Panic and Capitulation)

• The Ancient Text: "...and flee from what they fear."
• The Wall Street Translation: During a market crash, logic disappears. Even though long-term fundamentals may remain intact, the crowd sees red ink on their screens and panics. They stampede for the exits, liquidating portfolios at any price just to stop the pain.
• Actionable Rule: When the multitude is fleeing in terror, assets become drastically mispriced. The VIX (Volatility Index) spikes. This is when the professional trader steps in as a buyer. You must train your mind to feel excitement when the crowd feels terror.

Measuring Sentiment Quantitatively

Wei Liao did not just guess how the troops felt; he measured it. In modern trading, we don't guess sentiment; we measure it using quantitative indicators.

• The Fear & Greed Index: A direct measure of whether the multitude is currently desiring or fleeing.
• Put/Call Ratio: When retail traders buy too many Put options (protecting against a crash), fear is peaking. When they buy excessive Call options, greed is peaking.
• Price Action and Volume: A massive gap down on heavy volume that immediately reverses into a green candle is the ultimate sign of capitulation—the last of the terrified multitude fleeing the battlefield, leaving only strong hands.

By mastering the assessment of the multitude, you stop being a victim of the crowd and become a commander of it. In Module 3, "Military Orders and Discipline" (战威), we look at how to ensure you don't fall victim to the same emotions that destroy the crowd.