Best Thread Technical analysis... a load of ********

[Splitlink]

OTOH, who programs the computers?

Yes. but computers go into loops with "if" being the important word. IF Cell C is lower than Cell B return to Cell A , or something like that.

Split

 

[Trader333]

OTOH, who programs the computers?

I see your point, what I was trying to get across was that computers will execute without emotion and cannot change their minds, panic or behave in any way other than how they have been predetermined to do so. So they are the perfect example of "Trade Your Plan" which is something many traders wish they could do until faced with the emotions they have during certain trading conditions.


Paul

 

[dbphoenix]

I see your point, what I was trying to get across was that computers will execute without emotion and cannot change their minds, panic or behave in any way other than how they have been predetermined to do so. So they are the perfect example of "Trade Your Plan" which is something many traders wish they could do until faced with the emotions they have during certain trading conditions.


Paul

Being "emotional", however, need have nothing to do with the psychological aspects of markets. For example, bear markets become bull markets because manufaturers, sales outlets, consumers, and so on become optimistic about the future. Someone programs the computers to accumulate stocks in those companies which the buyer sees as benefitting from a bull market.

There is a wide range of what one could call "psychology" from the studied and determined behavior of the professional to the frantic hysteria of the kitchen table trader. But it isn't the latter who moves markets.

 

[TheBramble]

In your example the money, £30k, has disappeared "from the market" (not that the market actually owns anything) since it is now sitting as cash in the shorters bank account and not in the capitalisation of the shares he now owns. The amount of money "in the market" is not fixed - if there is a net inflow of money prices rise, as they fall if there is a net outflow.

I understand the point you’re making Jon. My earlier post highlighted the fact that just because shares fall in values doesn’t mean money has been lost, it’s just been redistributed.

On the other hand, to look more squarely at the point you make, you can’t be certain that the ‘winners’ have withdrawn their winnings into cash. Some may well have re-invested at the new lower level. These lads & lasses don’t like to keep their money off the table for too long and is unlikely to be sitting anywhere as mundane as their bank accounts.

A net inflow of money will only cause prices to rise if that flow is not controlled.

The amount of money in the market is never fixed, of course. But neither are the values of any specific stock either.

 

[Splitlink]

I understand the point you’re making Jon. My earlier post highlighted the fact that just because shares fall in values doesn’t mean money has been lost, it’s just been redistributed.

That's one way of putting it, I'll sleep better at night, now!

Split

 

[TheBramble]

That's one way of putting it, I'll sleep better at night, now!

You were feeling guilty about taking money before????

 

[TheBramble]

Value v Value

Looking at just the UK market as that seems to be the prime market for the most recent contributors to this thread (self excepted), does the current market represent less value or more value?

The market certainly has a lower total valuation, but it potentially represents greater value. It’s the way we use the word ‘Value’ that makes the difference.

In one sense, something of value is assumed to have worth. But also, something that is value is assumed to be a good deal, a bargain.

If the total UK market consisted of just ICI (as I mentioned them by example earlier), what is the total current value of the market? Is it the total number of shares of ICI at the current price? Or just the floating supply at the current price? Or the sum of the value of all the prices paid at all the levels shares were bought for those still holding shares in ICI? Or is it the value they will have if they were all to be unloaded (a) at once in one go or (b) gradually over time? Assume no other market forces at work.

I think that’s where we go down blind alleys talking about money withdrawn from the market or lost from the market.

Extreme (and ridiculous example).

If half of all ICI shares were purchased at £640 on Monday and the other half at £610 on Friday – what is the true worth and the true value of all ICI stock today?

 

[Splitlink]

You were feeling guilty about taking money before????

Of course-- it took part of the pleasure away. But I am, also, glad that I'm not losing any, anymore.

Split

 

[barjon]

Looking at just the UK market as that seems to be the prime market for the most recent contributors to this thread (self excepted), does the current market represent less value or more value?

The market certainly has a lower total valuation, but it potentially represents greater value. It’s the way we use the word ‘Value’ that makes the difference.

In one sense, something of value is assumed to have worth. But also, something that is value is assumed to be a good deal, a bargain.

If the total UK market consisted of just ICI (as I mentioned them by example earlier), what is the total current value of the market? Is it the total number of shares of ICI at the current price? Or just the floating supply at the current price? Or the sum of the value of all the prices paid at all the levels shares were bought for those still holding shares in ICI? Or is it the value they will have if they were all to be unloaded (a) at once in one go or (b) gradually over time? Assume no other market forces at work.

I think that’s where we go down blind alleys talking about money withdrawn from the market or lost from the market.

Extreme (and ridiculous example).

If half of all ICI shares were purchased at £640 on Monday and the other half at £610 on Friday – what is the true worth and the true value of all ICI stock today?

Ah, Tony, you don't half tax the brain cells on a Sunday morning :cheesy:

Like much accounting practice it's a hall of mirrors with a vast array of "now you see it, now you don't" alternative tricks to satisfy the punters.

All you can say is that your ICI stock now stands in the book £610, but that's just an accounting book figure which says little about true worth (that's what got the pension funds into trouble).

I would argue that its true worth is related to the income to be derived from it with the price being incidental. A benchmark figure for long term investors is a real return on their money of 2%. Assuming a totally stable and unmoving world - no economic growth, no inflation, no change in ICI profit/dividend etc etc - the fair value of ICI stock is a price that gave that 2% return.

'Course the world aint stable and therein lies the rub

cheers

jon

 

[chump]

The value realisable depends on whether you need to either buy it ,or sell it and to what degree that exists ,nothing more. Past prices are irrelevant unless all conditions prevalent at that time remain unchanged today. In the recent market that should be apparent.
Income streams are a 'fudgy' way of trying to make the decision quants based which as we all know acts to reduce uncertainty...LOL
IMO valuations based on income streams and the like are so imprecise that their main function is simply psychological , that is in the main they are just a means of getting someone into a frame of mind to make the decision. The degree of variability in the future is so wide that it makes todays decision as to valuation pretty meaningless in isolation.

It should also be apparent that there will be times when the needs/feelings of buyers/sellers are so desultory that volatility ,or differences in opinion on value will be very narrow. I suspect some people are confused by that interpreting it to mean the value is somehow more exact and this must be something to do with 'real' value and precise notions of income stream , P/E's etc when in fact it is still only to do with the way buyers/sellers feel about the asset.

 

[Charlton]

No single evaluation of the "worth" of a stcok

Ah, Tony, you don't half tax the brain cells on a Sunday morning :cheesy:

Like much accounting practice it's a hall of mirrors with a vast array of "now you see it, now you don't" alternative tricks to satisfy the punters.

All you can say is that your ICI stock now stands in the book £610, but that's just an accounting book figure which says little about true worth (that's what got the pension funds into trouble).

I would argue that its true worth is related to the income to be derived from it with the price being incidental. A benchmark figure for long term investors is a real return on their money of 2%. Assuming a totally stable and unmoving world - no economic growth, no inflation, no change in ICI profit/dividend etc etc - the fair value of ICI stock is a price that gave that 2% return.

'Course the world aint stable and therein lies the rub

cheers

jon

Jon

I don't think there is any single true value/worth for any financial instrument or, for that matter anything at all, in the world. Value, like beauty, is in the eye of the beholder. Agreed there are generally accepted valuations of products or pehaps, more correctly, we might say there are valuations that you have to "put up with" which is a kind of acceptance in its own right.

Taking Tony's ICI example on Friday the generally accepted price he quotes is £610, but that will not necessarily be its worth to you. If you bought it for £610 it is probably because you believe it has a strong probability of deviating from that, otherwise why buy it. You probably assumed it was a bargain price. Now the additional worth that you assign to it, because of your own beliefs, will depend on many factors and, in particular, your future strategy with respect to this stock. Are you holding long-term, short-term, planning a takeover/merger and so on.

Your strategy, as you pointed out, may be to provide an income stream. In that case the worth may be quite different to a capital gain strategy. In the former the worth takes into account factors such as past dividend yields and constancy. It will also take into account tax considerations, which may be different to those implicit in capital gains strategies. Furthermore shorter-term strategies will need to take into account dealing costs, that are minor considerations in longer-term ones.

Thus the worth of a stock means different things to different people. There is no single version of the truth.

Charlton

 

[chump]

chump



I don't disagree that the cherrypicking of isolated incidents and the clever use of statistics is so much cobblers. However, the very long term upward bias in the market is right and if was a young feller (oh, I wish ) setting up a trust fund for my grandchildren I would do it by selecting a number of companies on fundamentals or by a "buying the market" fund and never touch it.

cheers

jon

Coming back to you on this (and I always come back >>>LOL)

Just for completeness our little old lady was taking 750k divis on 20m of capital investment...a wonderful and inspiring 3.7%...at the same time she was foregoing 7.78% available on 10 yr bonds and 6.45% variable on cash deposits with no strings...our little old lady was a chump...she was taking higher risk for lower reward...remind me where I might have seen that lately

Now coming back to your quote above. If you want to take that approach ..basically handoffs and wheels of fortune blowing in my favour this is what I would do. If I lived in a mature bureaucratic economy I would take the yearly investment pot for my kid and split it into 2 or three sections. I would then forget completely any investment in any other mature economy. I would simply drip it two or three times each year into those emerging countries who because of their immaturity would be guaranteed to experience a higher rate of inflation than my home country. What this does is zeros in on a higher rate of growth brought about by higher productivity and comptitive advantage and across a longer timeframe a bias towards an increasingly stronger currency appreciation in relation to the currency I will eventually repatriate the funds to.
It's about as inevitable as the sun rising tomorrow that that will occur if you take a timeframe long enough to allow it to work. All it needs to succeed is the willingness to carry the plan through...drip the money in regardless of volatility and ignore any urge to realise it until it's been out there for 20 years or so..goes without saying buying the market rather than anythingelse would be the way to do it.

 

[counter_violent]

Yes. but computers go into loops with "if" being the important word. IF Cell C is lower than Cell B return to Cell A , or something like that.

Split

I think the word might be "else"......else this ...else that ...else the other....although I could be wrong

 

[mr_cassandra]

I've found that a lot of people with learned pronouncements like that have never tried to build one, nor are they aware of succesful ones already in existence.

 

[mr_cassandra]

excellent point. There is a large illusion in the markets spread by those who point out ta is not dead on every time, everyday. This limiting belief can obscure for many, the reality that an 'imperfect' system can make good profits.

 

[mr_cassandra]

Many 'experts' are not. Mr.gasket was sold by its entreprenurial owner to a corporation with all mba's to run it. They did run it, (into the ground) and the entreprenuer bought it back, for a song.
Funny, the case studies at BU never covered that story, which is more common than not.

 

[mr_cassandra]

It doesn't work for those who don't do the work. And for some reason (dissonance, ego) these people then decide that it doesn't work at all.

well said. An older version of the program I use took 5 minutes per day to update. I have had people ask me how it could be automated so they could avoid the 5 minutes.

They were already out of the game, just didn't know it.

 

[chump]

I certainly don't think Institutions behave like retail in certain ways. What they have to do and the restrictions they face compared to a retail investor prohiibit that. However ,ultimately they face psychological problems of theirown which is why we see so much benchmark investment etc etc.
No matter ,if your money is on the line and or your job then feelings inevitably come into it influencing what you do next.

Further to my earlier comments some people might wish to read ...

"Gresham's law in other fields
The principles of Gresham's Law can sometimes be applied to different fields of study. Gresham's Law generally speaks to any circumstance in which the "true" value of something is markedly different from the value people must accept, due to factors such as lack of information or governmental decree.

In the market for second hand cars, lemon automobiles (analogous to bad currency) will drive out the good cars. The problem is one of asymmetry of information. Sellers have a strong financial incentive to pass all cars off as "good" cars, especially lemons. This makes it chancy to buy a good car at a fair price, as the buyer risks overpaying for a lemon. The result is that buyers will only pay the fair price of a lemon, so at least they won't be ripped off. High quality cars tend to be pushed out of the market, because there is no good way to establish that they really are worth more. The Market for Lemons is a work that examines this problem in more detail"

Extracted from
http://en.wikipedia.org/wiki/Gresham's_Law
for ease

 

[chump]

LOL...I particularly enjoyed the double entendre of the word "lemon"

 

[dbphoenix]

Even if it's individuals placing the trades, doesn't mean they're affected by market psychology in the same way. Much of what happens in the cash equities markets is institutional real money flow, based on structural requirements (benchmark changes, portfolio implementation, inflows / outflows etc etc) so the 'worry factor' of putting on / taking off these positions is almost entirely diminished (and often not even under the control of the fund manager accountable for performance). Sure they also make tactical / strategic asset allocation decisions, but that's by no means all that goes on.

Although I'm sure that not everyone contributing to this thread fits in this camp, there 's a tendancy for some of the retail community to assume that all that really goes on in the wholesale markets is just a massively scaled up version of what they're doing sitting in front of their screens trading small prop positions all day.

It really isn't at all - there's a very diverse community out there doing different stuff for different reasons and in different ways, so you just can't take a straight line extrapolation and explain away the whole of market psychology based on the retail experience.

GJ

"Market psychology" is not "emotional turmoil". Those who are programming the trades needn't be "worried" at all.

The professional trader will look at a dramatic price movement and think "hmmm". The amateur will look at the same price movement and shout "ohmigod!" But it's still psychology. Even if one is making decisions based on planetary alignment.

Db