Vil wrote: ↑
Wed May 20, 2020 10:42 am
pmward wrote: ↑
Wed May 20, 2020 10:00 am
You want to look for as much proof in as many places as you can.
In the technical charting books they call it confluence
. The same way as in technical analysis there is no single indicator that can give you the complete confidence (as there is no such thing), so you use a confluence
of different indicators, so the same way you can use technical chart analysis on top of all the rest - fundamental analysis, crowd psychology/news, etc...
I do concur with what the 'random walks' is stating in a way that good risk/reward positions should be taken only ... And I would say there is a special brand of retail playing stocks that are so much different from the ones listed in the major indexes..
Yes, this was what I was getting at, but you put it a bit more distinctly. Once again, going back to the popular bond debate. One could think bonds have nowhere to go but down... but is it really a good idea to sell all your bonds when all evidence is still pointing otherwise (i.e. no confluence)? Shouldn't one at least wait until there is some form of confirmation that bonds are truly likely to go down? I mean, all the people that shorted bonds over the last 10 years trying to call a top before there was any confirmation have had a miserable time. Trying to call an exact top or bottom is a losing bet, imo.
Also, while markets statistically speaking display "random" price movements does not mean that markets truly are random. I mean if they were truly random, why then did they sell off after the news of the corona virus? There was a definite reason for the selloff. The coronavirus was a known entity for a couple months before stocks went down. Likewise with the efficient market hypothesis. Markets cannot be truly efficient, if they did we wouldn't have these volatile bull and bear swings in the markets. But what "random walk" and "efficient market hypothesis" do is give a model for looking at markets as a whole. Models are useful, but never totally right. The Fed uses models as well for all their decisions, and as everyone here is quick to point out they are not always right.
There are always places you can find inefficiencies, trends, and patterns if you look hard enough. For instance, is it random that tech is out performing financials and has been for a decade+ now? Is it efficient that value has underperformed growth for the last 18 years? In both these examples the answer is a resounding no. For now, if one is going to speculate they would do better to invest with these trends and having the wind at their back. Eventually though, these trends will shift, as all trends eventually do. Markets in a way are made up of many pendulums that each swing at a different pace. All trends eventually end, and new ones emerge, so one should never get married to any one idea, asset, strategy, indicator, etc. In markets everything fails at some point. But, if you manage your risk properly your portfolio as a whole doesn't have to fail. This is also why I have strategy diversification in 3 different strategies. What's the likelihood that all 3 strategies fail at once? Incredibly small. Matter of fact, since 1 of my 3 strategies is the PP, being 100% PP has more of a chance of failing than all 3 of my strategies failing at once.