Rationalizing Economics With Psychology To Understand Markets
Success in markets is measured by the accuracy of predicting the next price movement and then acting to profit from that movement. Conceptually a market sets the next price using the following formula:
Next Price = (Net Market Participant Psychology + Active Economic Fundamentals) X (Current Price)
Understanding markets requires learning fundamental rules that have always been guided by psychology and economics. Today’s markets function as the first open-air markets did years ago.
The only thing new to markets are the participants new to gaining some share of understanding. Once they learn the fundamentals of a specific market, they must integrate the market participants’ net psychology with its underlying economic fundamentals. The mixes of experts and unskilled, winners and losers, speculators and investors change.
Products, services, financial instruments, commodities, buyers, sellers, supply, demand, prices, and market operatives also change. Micro changes can be impossible to understand but fundamental rules guiding macro fluctuations do not change. Fundamental rules sometimes appear to be forsaken, but eventually return to control.
Micro and macro variances are related and set the stage for each other. Mechanical and technological tools also change, but these only impact the speed of application of fundamental rules. Successful participants learn fundamentals, apply them to their activities in specific markets and enter the arena knowing they will win and lose many times. Success is earned by those who expect both in reasonable proportions and avoid being wiped out by a few consecutive mistakes.
The following investment theorem that is always useful: Caveat Emptor.
UnderstandingMarkets.com is offered to provide straightforward thoughts, observations, comments and opinions. Site visitors should understand that it is the wide variety of thoughts, observations, comments and opinions that “make a market”. Always use caution before and after making an investment. Always watch your investments and know who and what sources to trust and not trust. UnderstandingMarkets.com is offered strictly to provide thoughts, observations, comments and opinions. UnderstandingMarkets.com reserves the right to edit, reformat, modify and reject any submitted information to improve communication between users. UnderstandingMarkets.com is intended to be used for general & professional observations. UnderstandingMarkets.com will not post submissions of a personal or psychological nature.
Users of UnderstandingMarkets.com agree to hold harmless UnderstandingMarkets.com, all employees and affiliated individuals. Neither UnderstandingMarkets.com, its employees, nor affiliated individuals makes nor implies any promise of reward to any user of this site. Each user understands and agrees that no promises nor prizes will be awarded nor issued by UnderstandingMarkets.com. All submissions become the property of UnderstandingMarkets.com.