Principia de Technical Analysis

dbphoenix · Mar 29, 2003

Quote from rlb21079:

NihabaAshi & dbphoenix,

I read the thread you pointed to and found it interesting. In this instance it seems the market was news driven. This may be a starting point for what I desire.

You misunderstand. The market is not driven by news. The market is driven by traders' reactions to the news.

--Db

rlb21079 · Mar 29, 2003

Quote from dbphoenix:

You misunderstand. The market is not driven by news. The market is driven by traders' reactions to the news.

--Db

I stand corrected. It is by necessity that prices are determined by the traders' reactions. Anyone who says otherwise is a fool. My new question is, what drives a trader's reactions?

dbphoenix · Mar 29, 2003

Quote from rlb21079:

I stand corrected. It is by necessity that prices are determined by the traders' reactions. Anyone who says otherwise is a fool. My new question is, what drives a trader's reactions?

Hope, fear, greed, doubt, anxiety, pride, desperation . . .

--Db

LongShot · Mar 29, 2003

Quote from dbphoenix:

Hope, fear, greed, doubt, anxiety, pride, desperation . . .

--Db

lustfulness, envy ...

nkhoi · Mar 30, 2003

Quote from dbphoenix:

Hope, fear, greed, doubt, anxiety, pride, desperation . . .

--Db

F.E.A.R. (False Evidence Appearing Real)

oddiduro · Mar 30, 2003

Quote from rlb21079:

To what can we attribute the seemingly random though intuitively non-random movements of the market? Bloomberg radio/TV supposes that the market is news driven, and furthermore based on the collective forward-looking opinions of all investors. Pure fundamental anlaysis (if there is such a thing) assumes earnings are the sole mover of markets. For Elite Traders, certainly too savy a bunch to accept either of the aforementioned, seem not to care. Technical analysis does not utilize a causal approach. Rather, it seems, it is based on the developement of a system which captures the result of market movement without knowing its cause. Would it not be useful in developing such a system to ponder the causes of market movement?

Certainly capital dynamics, as in the distribution of capital to potential investors, play a role. The method of capital input too would come into play.

Every market has a wheel.

Due east is hope, due north is greed, due west is fear, due south is despair.

The emotional state of the market can be measured on this wheel.

On the first day of an IPO there is hope. If good news follows, more people buy the hope, and it becomes greed. Then there is a news void, or people begin to think about whether or not the stock should be as high as it is, thus the onset of fear.

If the fear persists too long, it becomes despair, and a bottom is found, wherein new hope is born.

And so the wheel goes round and round.

More...

marketsurfer · Mar 30, 2003

Quote from dbphoenix:

You misunderstand. The market is not driven by news. The market is driven by traders' reactions to the news.

--Db

and the traders reactions are driven by the news.......

rlb is seeking to go deeper...

best,

surfer

links · Mar 30, 2003

Quote from rlb21079:

Admittedly, my ideas on this matter are less than cohesive, but as any trader must be, I am interested in expanding my understanding of the market. What I propose here is a ground-up logical approach to understanding the behaviour of men and women when faced with investing/trading opportunities.

Accedere dialecticus...

You're wasting your time, this wheel has already been discovered. Much of what you are looking for is part of behavioral finance.

http://www.investorhome.com/psych.htm

rlb21079 · Mar 30, 2003

dbphoenix & longshot,

Emotions such as greed, fear, etc. are useful in identifying present-state qualities of the individual. When one can identify a fearful individual, one can then make certain decisions about that individual's future behaviour. However, two questions come to mind. One, how are these states identified? Do we attempt to determine the emotions of all market participants in part or as a whole, and by what mechanism? Two, whence identified what decisions can be made? For example, if we have identified the market as comprising generally fearful individuals should we be short-selling, or buying?

This approach is valid but difficult to apply, thusly it may be advantageous take a different, more efficient approach.

rlb21079 · Mar 30, 2003

oddiduro & links,

http://www.investorhome.com/psych.htm Fascinating!

Tversky and Kahneman ... "found that individuals are much more distressed by prospective losses than they are happy by equivalent gains."

I have been told that Call Options are proportionally held to expiration at a much greater frequency than Put Options. The above may explain this phenomena, and in stocks may explain why selling an issue at a loss is so common. A stock goes up - but not enough for the trader to be happy, the stock goes down and the trader fails to sell from fear of excepting loss. These ideas are explained in more detail later on in "psych.htm".

The "wheel" concept too is extraordinary. I will try to take this idea one step further to create,

Principle II: Large-scale market movements are derived from circular human behaviours. The result of these behaviours is, loosely, a sine wave, which, due to the influx of capital, not fluctuating around a constant y-axis but a sloped line (or parabola, hyperbola, ...?).

Note: This fits well with what I have often heard - markets don't change because people don't change, markets move on human nature, which never changes.

Thankyou both.

Principia de Technical Analysis

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