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Why do prices trend?

Discussion in 'Beginner's Lounge' started by aBadTrader, Sep 13, 2016.

  1. aBadTrader

    aBadTrader Well-Known Member

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    Why do prices trend? I get the price action part of it, but why do they sometimes follow this very fluid motion. With accumulation/distribution, that I can understand. But why an up or down trend? What is the mentality of the market when this trending occurs?
     
  2. Gringotts Bank

    Gringotts Bank Well-Known Member

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    Net expectation of future price of all buyers/sellers.

    Net expectation of future price is higher, price goes up. And vice versa.
     
  3. Smurf1976

    Smurf1976 Well-Known Member

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    Changes in the underlying business is one factor. Company profits are getting better or worse with the expectation that this results in higher or lower dividends going forward.

    Simply following the herd is a major factor too. Shares in XYZ go up = encourages others to jump on board or vice versa. At the macro level if the whole market is going up or down then that leads to the same thinking. Market falls, people become aware and some will panic = more sellers so price continues to fall or vice versa.

    Following the herd is much the same as any fashion trend be it cars, clothing, phones or whatever and can be seen in most areas of life not just investing. However many years ago your mate bought an iPhone, their boss saw it and thought that's a good idea so they got one too, then you got one and now just about everyone's carrying a device or a competitor (Samsung etc) that few had even thought about not too long ago. Same with everything from clothing to holiday destinations, once it starts to gain momentum in either direction then others tend to follow the trend regardless of any underlying reason.

    The "following the herd" aspect leads to a situation where in practice many small investors end up buying and selling at the worst possible time. Get in long after the "smart money" did (and the smart ones are now getting out) and vice versa. :2twocents
     
  4. aBadTrader

    aBadTrader Well-Known Member

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    that much I can gather. But I wonder what makes trends so, rythmic. The crowd seems to come to these negative/positive conclusions extremely quickly. I trade the 10 minute charts for the AUD/USD and AUD/JPY pairs, and my goodness, the trends are zen
     
  5. Gringotts Bank

    Gringotts Bank Well-Known Member

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    They can't be that rhythmic, otherwise it would constitute a big edge. No big edges exist in markets, only small ones.

    Trends are zen? :confused:
     
  6. Trendnomics

    Trendnomics Well-Known Member

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    There is an underlying "positive drift" (similar to a positive expectancy for price movements) in most markets, due to inflation, population growth, industry sector growth, etc.

    When modeled using parameter based randomisation, even the smallest "positive drift" can generate significant long term trends.
     
  7. tech/a

    tech/a No Ordinary Duck!

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    Up trends occur when demand exceeds supply
    The trend continues until supply either absorbs
    Or exceeds demand

    Down trends occur when supply exceeds demand
    And continues until be and either demand absorbs
    Or exceeds supply.

    This is where ---- at each extremity ---- Distribution
    Or Accumulation occurs.

    Statistically the market spends most of it's time distributing or
    Accumulating
     
  8. ReXXar

    ReXXar Well-Known Member

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    As Ben Graham said, "its a mystery"

     
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