Markets & its nature

The whole is sum of all its parts. The Market is the sum of actions of all the players – buyers & sellers. There are times when buyers overwhelm and times when sellers overwhelm. The reasons of actions are varied and diverse, and actually beyond some common-sensual limit absurd to configure. This is because for every reason for a buyer to buy, there is equal reason for sellers to sell. Judging, which of the two reasons are valid, better and is correct, is a wild goose chase.

This causes an inherent volatility in the markets, an uncertainty that is unexplained and may even seem unexplainable. It’s like entering a strange dark room not know what to expect, or reasons of its appearance, or the subsequent actions should something materialize. Hence, a whole lot of populace is afraid of markets. Some charitably call it a casino and some call it meaner and meaner names. But in almost all the cases, it is usually the ‘sour grapes’ reprisals.

Markets for some strange reason, beyond comprehension and almost magically, moves in a very systematic and with almost mathematical precision. We can explain some part of this with help of few theories, but in my opinion, the methodical nature of its movements is largely magical in nature. However, this ‘magical’ nature does not necessarily mean it is random; these expectations can be fairly well gauged and profited from.

There are two main reasons why this method in madness prevails. The foremost is that all market players are not created equal. Every market player has different level of contribution and impact. The larger and most influential players are almost always following a system, which creates a wave which feeds on itself in a self-fulfilling feedback loop; hence you will find markets move in a very systematic manner, in pretty much a replica of these larger and well informed players.

It is also because the nature of the all the players in the market – active or passive participation – is well, constant. The knowledge, influence, the human nature – greed, fear, perceptions - of all the players, will ensure that markets moves in some systematized form.

Loops

Due to the constant nature of feedback loops, of perpetual trading in limited number of products, the actions of others have very high impact of the subsequent actions of other players. Especially, if the first party to influence the stock price is a high impact large player, the “game” for the other players changes substantially. This creates a feedback loop, that goes on and on, and at times and frequently creates a cycles of greed and fear.

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