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I agree, Bob -
To add more....
When people engage in trading and get into a market, they are kinda
"stuck" in a position until something happens, good or bad. How they act
when things are quiet or normal is probably somewhat random based on
impatience, greed, opinions, fundamentals, news, etc. What IS very
predictable are the ways most traders react to panics when they occur
against their positions.
I can garantee you that I and most everyone on this list who is long Gold
will panic out if it drops sharply $50 in a day. And if short, a $50 spike
up will cause most to be stopped out or panic out...."involuntarily".
I personally feel most markets cannot make a meaningful advance until they
have a panic sell-off first.
(and vice versa) The magnitude depends on the time frame we are looking
at.
So....what I feel IS predictable is what happens AFTER a panic up or down.
If it is INVOLUNTARY liquidation, there is usually a high probability of a
rebound. The bigger the time frame of the panic, the bigger time frame of
the rebound. ( a top or bottom of significance) I'm not talking about
predicting a panic, just what usually happens after one.
Most of my personal trading methods and forecasting are based upon this
assumption.
Oh, just to show how effective panics are.....try this primative
test....though greatly biased 'cuz of the bull market: In the S&P 500:
BUY the breakout of the 20 day LOW...that's it! Use a $5,000 stop and
liquidate at a $10,000 profit. Ass kicking! And against conventional
wisdom, of course. Like any system, this will get creamed when the market
changes, but the point is that we really do get paid for putting our hands
in the fire....(from Market Wizards)
Tom Cathey
> Also, prices do tend to react at various support and resistance levels,
> perhaps because people think they should, so take actions that are
> self-fulfilling.
>
> > If enough people are told that prices will bounce off of a
> support level, they will buy at those levels and prices will
> rise.
>
> > If enough people think that the price will rise after it
> breaks to new highs, they will buy at those levels and
> prices will rise.
>
> We are dealing with both the fundamental forces that cause a price to
move
> and with the psychology of what people think will happen as prices reach
> various levels.
>
> Bob Fulks
>
>
>
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