The Traders Behind Price

[johnjohn1hew 10]

In this thread bring forward your understanding of the psychological factors inherent in the markets. Donate examples, quotes, charts - anything and everything.

Edited June 26, 2009 by johnjohn1hew

[johnjohn1hew 10]

Here is a quote from Pyschology of the Stock Market, by G.C. Selden (1912).

 

The fact will at once be recognized that the above description is, in essence, a story of human hopes and fears; of mental attitude, on the part of those interested, resulting from their own position in the market, rather than from any deliberate judgment of conditions; of an unwarranted projection by the public imagination of a perceived present into an unknown, though not wholly unforgetable, future.

Edited June 26, 2009 by johnjohn1hew

[DbPhoenix 42]

In 1936, British economist John Maynard Keynes gave the best description of the stock market I've ever heard. He said stock market investors are like judges in a beauty contest.

 

But the idea of this beauty contest is not to pick the prettiest girl, but rather to pick the girl that all other judges will think is the prettiest.

 

This simple metaphor is profound because it reveals the truth: For all of our study of the economy and companies, it is subjective perception -- not objective reality -- that sets stock prices.

 

And it's perplexing because, as Keynes pointed out, all of the judges are fully aware of the true nature of the contest and act accordingly. Each judge knows that he's a player in an fabulously complex game of psych and double-psych, an infinite regress of figuring out what the other guy is thinking you're thinking he's thinking you're thinking he's thinking, and so on and so on ...

 

-- Don Luskin

[johnjohn1hew 10]

The Time Element - Tape Reading and Market Tactics, by Humphrey H. O'Neil (1931)

Humphrey H. O'Neil introduced 'The Time Element' to me. This is an obliteration of the price-structure due to the inability of the traders to act fast enough to support or resist a sudden panic or boom and its following movements. He states that "humans need time for the return of reason following such shocks. How long did it take you to get over the the emotional effects of the car crash?"

 

I took this theory to mean that if a sudden rise or decline were to take place, the stabilization period would take a whille to form as the traders would need enough time to reason the market, its meaning and its future developments.

Edited June 27, 2009 by johnjohn1hew

[thrunner 10]

In 1936,... Each judge knows that he's a player in an fabulously complex game of psych and double-psych, an infinite regress of figuring out what the other guy is thinking you're thinking he's thinking you're thinking he's thinking, and so on and so on ...

 

-- Don Luskin

Each judge usually asks Donald Trump in a beauty contest. In the market, each judge usually asks Goldman Sachs.

 

The Time Element - Tape Reading and Market Tactics, by Humphrey H. O'Neil (1931)

Humphrey H. O'Neil introduced 'The Time Element' to me. This is an obliteration of the price-structure due to the inability of the traders to act fast enough to support or resist a sudden panic or boom and its following movements. He states that "humans need time for the return of reason following such shocks. How long did it take you to get over the the emotional effects of the car crash?" ...

11 to 14 months, so said Coppock.

[johnjohn1hew 10]

The Time Element.

 

The sudden increase/decrease could catch most traders off-guard and really test their reasoning ability. They do not know whether to support or resist the move and those trade who do act on the move, are most likely to go with it, adding to its force. Here is an analogy: if a cinder block falls on my head, am i going to be able to act quickly enough to decide to go to the hospital? No, I will need time to evaluate the severity of the situation and the overall damage before i come to a conclusion as to what i am going to do next. So basically the movement after a sudden rise or fall is left up to the opinions of the majority of the traders since there will most likely be a lack of support + resistance in all cases.