"The mouth must neither be pulled so hard that he holds his nose in the air, nor so gently that he takes no notice. As soon as he raises his neck when you pull, give him the bit at once. Invariably, in fact, as we cannot too often repeat, you must humor you horse whenever he responds to your wishes."

He is saying when the horse lifts the base of his neck release the reins.  It is no coincidence, in my opinion, that he speaks of giving the bit (release) and humoring the horse in the same paragraph.  

"Now if after he has learnt this you pull him up with the bit and at the same time give him one of the signs to go forward, then being held back by the bit and yet roused by the signal to go forward, he throws his chest out and lifts his legs from the ground impatiently, but not with a supple motion; for when horses feel uncomfortable, the action of their legs is not at all supple.  But if, when he is thus excited, you give him the bit, then, mistaking the looseness of the bit for a deliverance from restraint, he bounds forward for very joy with a proud bearing and supple legs, exultant, imitating exactly in every way the graces that he displays before horses."

Here he speaks of releasing the reins (giving the horse the bit) in order to ensure that the horse feels free to go forward after he has been collected. 

"if you gallop him during a ride until he sweats freely, and as soon as he prances in fine style, quickly dismount and unbridle him, you may be sure that he will come willingly to the prance."  

Sometimes the very best reward is just getting off.  Behavioral science has only confirmed what Xenophon knew instinctively 2500 years ago.  Reward the behavior you want!