If somebody tell you in the face that certain stock or instrument will go up or down with absolute certainty, then I can safely conclude that either he/she was telling you outright lie or he/she was involved in illegal price fixing or insider trading activity. Nobody ever can predict exactly the price movement of certain instrument in the open market. Simply cannot. Here is why…

Indicator, Gut Feeling, Supernatural and Random Events….

Going Up? Really !?

Say in one beautiful morning, all technical indicators indicates stock XYZ  will go up, Dow Jones future also bullish, the sky is clear blue, the mood is brilliant, the psychics also say it will go up, planet Jupiter and Saturn are also in alignment and your gut also saying it will be up today. Will it go up as predicted ?

Let’s remember that the price movement is determine mainly by the number of seller and buyer. If there are too many buyer, the price will go up. If there are more seller than buyer, the price will go down. (Read How The Price Moves in Market if you need more illustration)

Therefore, any of these can happen:

• Mr Jones decides to buy that chateux in French
  Mr Jones is long term investor of company XYZ and hold as much as $10million worth of XYZ stock. Today he just found out that that chateux in France where he spen the holiday last Christmas is on the market for sale. He need $10 million immediately to secure the chateux that he always wanted. So he call the broker: “Sell all $10 million of my XYZ stock, today !”
  Can the price now go down with suddenly $10million additional share to be sold at once ? Of course it’e possible
• Some lunatics just flown a plane crashing into World Trade Center
  (sound familiar?) Yes, major catasrophy will trigger panic selling where people just happy to sold at any price. Will  the price still go up ?
• CEO of  XYZ company has just been arrested for defrauding the company for $100 million. He just made public apology. Will the price still go up ?
• Earthquake of 8 richter scale has demolished XYZ company’s headquarter. Will the price still  go up ?
• etc, etc

Yes, some random events will always take place at any time in the market. Some will have no or little effect to the price, but some will have significant effect. Since these randoms events also cannot be controlled by nobody, then the particular result of something cannot really be substantiated

Predicting the Market

The business of predicting the market is multi million dollar business these days. Are we saying that all of them is just a lie ? No. Forecasting / market opinion is just forecasting. What likely to be happen, but not what will be happen.

Countless of people have made their fortune following such prediction, so it has its own merit. So the prediction is not just come up from thin air, but it’s from quite valid analysis.

The point is

Whatever system or indicator or secret method that you apply to predict the market, you need to have a plan just in case it is not happening as expected. As long as you realize the fact that some random event can distort the best analysis, and you have trading plan that covers this matter, then you will be on your way on share trading success.

So, next time the indicator let s you down, just remember Mr Jones….

Hope this helps

Denis Kristanda