As Sir Isaac Newton said in his First Law of Motion: An object in motion will stay in motion, unless an outside force acts upon it.
That gave rise to the concept of momentum. In the financial markets, price has momentum too. Daryl Guppy, documented in his book about the characteristics of price movement of shares. He verified his obervations with actual results and here are the details:
Sideway
A stock trading within a band (price range) has a 70% chance to move sideways further. This leaves 50% chance to either move up or down. Hence, there is a 15% chance to go up and a 15% to go down.
Uptrend
When the stock price is moving up, there is a 75% chance for it to move in the same direction, and within the price channel. Unlike the sideway price action, probability to accelerate up and down are no longer equal. There is a higher chance for the price to accelerate upwards at 15% and a lower tendency to accelerate downwards, which was found to be 10%. Quoting Daryl, “pick a stock like this and the balance of probability is overwhelming on your side.”
Downtrend
When the stock is trending down, there is a 80% probability for the stock to continue in the same direction. It also has a 15% for the stock to accelerate downwards while it only has a 5% chance for it to accerlerate upwards.
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{ 9 comments… read them below or add one }
agree. That is my personal observation as well. Most Stock markets move in the same direction. Which is why you should treat “advice” by Financial Planners to diversify by investing into different stock markets as just bullshit and crap.
I noticed that most Global stock markets after the recent Market Correction in Jan to Feb 2010, have turned up and likely to be in an uptrend for the next few months. Any other different views on this?
Year 2010 likely to be a Good Economic Year, which is probably why Singapore government is having the General Elections soon……year 2011 or 2012 might be another “downturn” though….
I wish it’s that simple….In reality it’s not , unfortunately.
I wish it’s that simple….In reality it’s not , unfortunately.
Dennis – yeah, the uptrend is still intact, so 2010 looks good!
Ryan – Of cos market is not so simple. Retracements are a common sight. But I think Daryl Guppy is trying to point out that prices do trend.
Dennis – yeah, the uptrend is still intact, so 2010 looks good!
Ryan – Of cos market is not so simple. Retracements are a common sight. But I think Daryl Guppy is trying to point out that prices do trend.
Life is quite simple. Human make it over-complicated. Sunrise, Sunset, Nature has its 4 seasons, so even the Investment market has its market cycles. If you’re able to estimate approximately which “season” the Investment Market is in, it is possible to Identify and to Ride a trend. Market Cycle Investing is basically how I grew S$250,000 to S$1 million in the last Bull market. It also helped me avoid the Market Crash that came after the Bull in year 2008……..and in Oct 2008, it has once again “guided” me to Buying stocks when Fear is prevalent in the market.
Life is quite simple. Or maybe I’m too simplistic……but so far, it seems to have worked well…..
Life is quite simple. Human make it over-complicated. Sunrise, Sunset, Nature has its 4 seasons, so even the Investment market has its market cycles. If you’re able to estimate approximately which “season” the Investment Market is in, it is possible to Identify and to Ride a trend. Market Cycle Investing is basically how I grew S$250,000 to S$1 million in the last Bull market. It also helped me avoid the Market Crash that came after the Bull in year 2008……..and in Oct 2008, it has once again “guided” me to Buying stocks when Fear is prevalent in the market.
Life is quite simple. Or maybe I’m too simplistic……but so far, it seems to have worked well…..
I am also an advocate for simplicity!
I am also an advocate for simplicity!
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