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Charting and Fundamentals are fake...unless you believe in them

Discussion in 'Stock Market Nuts and Bolts' started by Zaxon, Feb 18, 2019.

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  1. Zaxon

    Zaxon The voice of reason

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    To a fundamental investor, "head and shoulders" is an anti-dandruff shampoo, and technical investors may as well be reading tea leaves.

    To a value investor, the fact that the share price is plummeting isn't important, because they know that the "One True Value" of the stock will win in the end.

    To a momentum investor, seeing a value investor sink more money into a sinking ship is evidence of their delusion.

    My thesis is that all of these things are fake, and only work if people believe in them.

    Thesis of Belief
    There's only one thing that moves the market. Individual buyers and sellers of that specific stock choose to bridge the bid/ask gap which causes the share price to change.

    Now, if the buyer who chose to pay more doesn't care about Trump's tariff deal problems with China, then the stock didn't move because of that. If the buyer has never looked at a chart in his life, then the price didn't move because it broke through a resistance level on a chart. And if the buyer bought because the price was going up anyway, then the price didn't move because it was "below fair value".

    Since price moves are caused by a sequence of individual buy/sell decisions, only the beliefs that those specific traders used are the true cause of the price change, and your personal belief on how the market works, may be wrong during those trades.

    But Everything is Connected
    The reality is that there are a range of technical, fundamental, macro event, and momentum investors bidding stock prices up and down. So they all influence each other's decisions.

    But as a hypothetical, it's interesting to think that if people across the board chose to ignore fundamentals, charts, or macro events in their buying/selling decisions, then those methods would cease to be relevant and would stop working.
     
    qldfrog and willy1111 like this.
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