How can you know?

[kk_]

I just started learning trading and I don't understand how traders can predict what will happen to the stock price because it depends on the psychology of the crowd or people with money. Could someone explain it to me?

 

[1nvest]

I just started learning trading and I don't understand how traders can predict what will happen to the stock price because it depends on the psychology of the crowd or people with money. Could someone explain it to me?

Hi KK, its not crowd pyschology that moves the market, only the demand at any given price point, for any given asset
it doesnt matter whether they are all sociopaths, there simply needs to be more of the sociopaths buying at a price, or selling at a price to move it up or down.
and as for prediction. when we use technical or even fundamental analysis, any "prediction" is merely based on probability
if a moving average crosses above another one, there is only a higher probability or possibly a lower one, based on historical results. even if historical results show the probability is 100%, it doesnt mean it will remain at 100%. we can no more predict what will happen than know the minds of the participants of the market. we just need an edge, ie a positive expectancy, a higher probability that something may happen than not to make money

 

[burnout]

I'd say it depends on the style of trading you choose. The shorter your time-frame, the more you want to just capitalize on other trader's emotions - the underlying business becomes much less relevant in that regard.

Momentum = Follow the fear (go short) or follow the greed (go long) as it is happening in real time.

Contrarian = Do the opposite of those fear/greed moves (betting on market over reactions to news/events - almost always at least a partial price recovery occurs shortly afterwards when calmer heads prevail).

Investing = Buy companies with good fundamentals/growing business (current price almost irrelevant), sell when they stop growing.

 

[tomorton]

It's quite common for an expert to show you a chart on the internet and say, well, look, price made this pattern or showed this behaviour and I thought that means XYZ, so I went long here and made 5 times my risk. What they don't show you is that they also had sell orders set which did not trigger and perhaps other buy orders likewise.

A trader is not able to predict very accurately what the market will do, but must be 100% accurate on what he will do about it.

 

[MRBIGBAG]

I am quite new to trading and have been doing well with order blocks. I have a quick question. How do you know if price is going to respect your demand or supply zone if there are more than one demand or supply on the chart

 

[tomorton]

I am quict new to trading and have been doing well with order blocks. I have a quick question. How do you know if price is going to respect your demand or supply zone if there are more than one demand or supply on the chart

Most traders cannot define in words why they put a support zone here and a resistance zone here. So what they're saying is that they are good car drivers because sometimes they stop at a red light and sometimes they go through but so far they have not been killed.

This doesn't mean that these zones do not help you in TA but unless a consistent and rational method is used to find these zones they are not relevant, they are random.

Once you have found or devleoped a set method, demo it and back-test it and trial it until you have your own tactical rules.

 

[Iconoclast1978]

Most traders cannot define in words why they put a support zone here and a resistance zone here. So what they're saying is that they are good car drivers because sometimes they stop at a red light and sometimes they go through but so far they have not been killed.

This doesn't mean that these zones do not help you in TA but unless a consistent and rational method is used to find these zones they are not relevant, they are random.

Once you have found or devleoped a set method, demo it and back-test it and trial it until you have your own tactical rules.

The thing I found about back testing is I am not nearly as good at it as I am at actual trading. No real risk. The chart speed is at your control so you can wizz along and test as opposed to the endless slow scrutinising of real time price action.

I've given up back testing. Forward testing is useful though but a bit of a grind and data sets take a long time to accumulate for obvious reasons.