Random Markets & Other Misconceptions
Most people see movements in the stock market as being random. Or at the very least heavily influenced by news.
Yet how many times do we see a stock or market move in the opposite direction to what we thought it was going to do?
Sudden moves can often surface out of nowhere, and appear to have little to do with logic.
How many times have you seen a company report an excellent quarter, only to see the share price close lower by end of day? Or see the early stages of a strong bull market evolve at the depths of a recession or after a catastrophic event?
No wonder so many people think the stock market is nothing more than a casino.
In reality though, the stock market is not complicated to follow if you can read price charts and remove the noise of news and other fundamental information that can confuse and cloud judgement.
Understanding the technical variables that are driving price action to go up, down, or sideways will remove frustration from your trading.
We often hear the stock market described as random, chaotic or unpredictable.
The words are reinforced when our favourite indicator fails on that big trade when we needed it to succeed. Or when after days of fundamental analysis on a particular company, the stock drops 10% a couple of days after we’ve bought a swag of their shares.
The truth is, there is a strong element of logic beneath the surface of markets and individual stocks, that is often hidden within our perception that they are chaotic and unpredictable.
Like any open free market across the globe, financial markets are controlled by supply and demand. Sounds simple enough…
Yet the laws of supply and demand in our stock markets may not be obvious. When there is more demand, markets should logically go up, and when there is more supply they should go down.
Yet what we need to understand is how supply and demand can vary under different market conditions. How it can vary on a day to day basis, or even on an hour to hour basis.
The big question though is when we finally understand how the supply / demand equation works under varying market conditions, how can we take advantage of this to become more consistently profitable in our trading?
