From time to time market experts proclaim that a particular market movement is absolutely certain to happen in the near future. I'm thinking for instance of before Christmas last year when the euro was touted as being certain to reach parity with Sterling (which of course it never did), and also the current situation with stock markets which a lot of people seem to be saying are certain to continue their recent rise.
As a basis for trading, these predictions don't seem to me to be very good. In the case of the euro of course it didn't turn out. If a level is certain to be reached, why hasn't it been reached now? It would just seem too easy if there ever was a dead cert. But it doesn't seem that clear to me what mechanism actually prevents these sorts of predictions from coming true.
In the case of the euro, if everyone believed the predictions, traders should have bought euros, companies needing to buy Sterling should have held off expecting Sterling to be cheaper in the future and companies needing to buy euros with Sterling should have done it as soon as possible, expecting euros to get dearer. All of these should have caused the euro to rise and the predictions to come true.
But they didn't come true. So presumably there must be a lot of people out there (a majority really) who are smart enough not to believe what market experts and the press are telling us. Or maybe these predictions are only ever made when the markets have gone so far out of balance that the forces for a correction to take place are stronger than the self-fulfilling tendency that the predictions themselves ought to have if they are believed.
Anyone got anything to add? Maybe sometimes they do come true?
As a basis for trading, these predictions don't seem to me to be very good. In the case of the euro of course it didn't turn out. If a level is certain to be reached, why hasn't it been reached now? It would just seem too easy if there ever was a dead cert. But it doesn't seem that clear to me what mechanism actually prevents these sorts of predictions from coming true.
In the case of the euro, if everyone believed the predictions, traders should have bought euros, companies needing to buy Sterling should have held off expecting Sterling to be cheaper in the future and companies needing to buy euros with Sterling should have done it as soon as possible, expecting euros to get dearer. All of these should have caused the euro to rise and the predictions to come true.
But they didn't come true. So presumably there must be a lot of people out there (a majority really) who are smart enough not to believe what market experts and the press are telling us. Or maybe these predictions are only ever made when the markets have gone so far out of balance that the forces for a correction to take place are stronger than the self-fulfilling tendency that the predictions themselves ought to have if they are believed.
Anyone got anything to add? Maybe sometimes they do come true?
