FA and TA both depends on INFORMATION. Information comes from the underlying company and also from the perception/formulationof more information generated by the market. In other words, price of a stock is a functionof both fundamentals and perception. Fundamentals being the more important because without it there is no stock.FA tries to acertain the accurracy of the information coming out from the company andcapitalize on the information discrepacy between the companies information and how the market evaluateit.TA however assumes that the company is doing its job of making money and staying in existence but focus on the perception
part of the price which is volatile. FA tries not to make such assumption but focus on ensuring the the company is doing so.If the company is doing its job then the price is long term bullish.If the company is not doing its job then the price is long term bearish.But either one, along the way the price goes up and down(provided there is enuf vol) due to perception and TA tries to profit
from these movements.TA depends on FA for security and movement.FA depends on TA for maximum profit. FA takes advantage of TA.Both depends on itself to work. Huh? Yes, this is the theory of reflexivity by Soros. TA and FA information is both generated by humans and they themselves affect the price.When FA fails, it is usually because of the inaccuracy of the companies information. At these times, TA can be useful because it can pick up certain clues(due to action of insiders and relatedparties that knows these information beforehand). FA also fails in bear-ing market.
On astrology and markets. Astrological information may have certain truth in it. But the write up aboutit causes an affect greater than the real affect it actually has(In other words, mainly crap). The fact that many ppl believe in it causes it to be true.(You believe it is a bad year to buy, then you dont buy. If enuf ppl dont buy then the market will be depress) This is also true for TA, the fact that many traders believe in TA also can cause the believe to manifest.How true is the statement that astrological is played up more than it actually is true?This is because when it comes to natural disasters(which cannot be affected by believe),astrology always play backhand smash. After it happens, a lot of crap comes out saying how astrology indicated that it will happen. But never can astrology call a forehand, otherwise everybody can avoid natural disaster.
Wednesday, January 21, 2009
Thursday, January 8, 2009
A bit of psychology
The psychology behind the stock market is very interesting.
It never fails to amaze me the thought process that goes on inside people who stays at the sidelines despite the up and downs of the market.
When it goes up, they think it is too expensive to buy already, when it goes down, they are scared the market is getting worse and will get worse some more, when it goes sideways, they are unsure.. so they never buy. In the end, it is the FEAR of losing money that drives this thoughts. So they play save to keep whatever they have than risk losing what they have.
Averaging up or down is also the same. As the price drops, ppl average down thinks that by buying lower and lower, their average price is lower so that when it goes up again, their margin will be better than if they just bought at the first price. Averaging up, the person thinks that since it is a rising star, as long as the price goes up, it is fine buying more and more.
In both circumstances, the thought process behind is the same... you buy because you have confidence in the stock/company and think it will go UP(eventually, in the case of averaging down). Afterall, that is the only reason ppl buy anyway. Averaging is also basically acknowledging the fact that no one can time the market perfectly(buying right at the bottom or selling right at the top). Another reason ppl average is due to circumstances that they have money coming in and wishes to continue to invest in the stock they like. But the underlying thought process remains the same.
It never fails to amaze me the thought process that goes on inside people who stays at the sidelines despite the up and downs of the market.
When it goes up, they think it is too expensive to buy already, when it goes down, they are scared the market is getting worse and will get worse some more, when it goes sideways, they are unsure.. so they never buy. In the end, it is the FEAR of losing money that drives this thoughts. So they play save to keep whatever they have than risk losing what they have.
Averaging up or down is also the same. As the price drops, ppl average down thinks that by buying lower and lower, their average price is lower so that when it goes up again, their margin will be better than if they just bought at the first price. Averaging up, the person thinks that since it is a rising star, as long as the price goes up, it is fine buying more and more.
In both circumstances, the thought process behind is the same... you buy because you have confidence in the stock/company and think it will go UP(eventually, in the case of averaging down). Afterall, that is the only reason ppl buy anyway. Averaging is also basically acknowledging the fact that no one can time the market perfectly(buying right at the bottom or selling right at the top). Another reason ppl average is due to circumstances that they have money coming in and wishes to continue to invest in the stock they like. But the underlying thought process remains the same.
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