The articles in this section are mostly about market psychology. As a trader, you have to be aware of market psychology, what it does to you, but also what it does to other market participants. Every trader at some point realizes that everything is not what it always seemed to be. There is a somewhat hidden reality behind the obvious one. Getting to know this hidden reality, this different view on the markets and human behavior, will likely make you a better a trader in the end.
In our previous post about gaps, we looked at market behavior around opening-gaps and would generally happen during that same trading session. But nothing spectacular came out, an opening-gap basically meant nothing for further price action that day. Also, the average size of an opening-gap turned out to be a few factors smaller than average daily volatility, so those margins were easily absorbed regardless of whether there was an opening gap or not.
Now suppose the opening-gap does not get closed during the same trading day. How does affect the market in the next couple of days? Does price gravitate back towards such a gap, as if it wants to pull in price or doesn't it have any significant meaning as we saw in the opening-gaps analysis? Let's dive in.
There's a lot of talk about so-called gaps. General wisdom says they will be closed. But is that true? Is there a statistical edge about gaps that we can use in our trading? Let's find out.
If you use any search engine and type in the phrase "How to become a successful short term trader" or anything similar, you will find roughly 70 million(!) websites that will help you in achieving that goal, or so it seems. While in reality, there's only one right and honest answer which is more like this: "There is an extremely low probability you will ever be successful in short term trading, and you will most likely lose all funds in your account".
The first part of 'Market gurus and their predictions' has really caught some attention. Let's now move on to the next part about this subject.
Again, as mentioned in part 1, these pages are mostly meant as an eye-opener that almost all of the 'mainstream' analysts have no added value in trading or investing. In fact, flipping a coin has a higher probability of making a correct call about the expected market direction than those analysts.
As a trader or investor, you certainly have noticed the tons of analysts and self-proclaimed gurus out there who all give their opinion about what will likely happen next in the markets. But are they any good?
"Never complain, never explain" - it's a well known quote. Famous people have used it, management gurus have used it, too many to accurately determine who initially came up with it. Let's apply this to trading, because trading is probably the ultimate activity where this quote fits extremely well.
Every now and then when I'm reading an article from the world of behavioral economics discussing a particular phenomenon, it makes you realize once again how much trading and investing is about human behavior.
The trading world is known for its beautiful one-liners that are all so true, but at the same time so extremely difficult to practice. Some of the most well known around are: "Cut your losses and let your profits run." or "The trend is your friend." (until it isn't), just to mention a few. Collecting more of those one-liners would be a great subject for another article. This post deals with getting with the trend.
Humans are very good at recognizing patterns in every day life, and mostly patterns that we are familiar with. For instance, it doesn't take us a whole lot of effort to recognize a face, even if that face is showing a different expression than the first time we saw it. Recognizing a road crossing, but from a different angle than the first time is equally easy.
Investing in gold has been on every front page in the last two, three years. The financial crisis has scared a lot of investors who lost faith in everything but gold. Many investors buy gold in some form, in paper or physical gold. Investing in gold is not something from the last couple of years, but has been around for many years. It's just that the last couple of years, gold has every characteristic of being a bubble. Gold investors sometimes seem to lose all good sense of judgment and logic. Buying gold has almost become a sort of religion.