ok I just wanted to post a note on something.
imagine 10 guys in a closed room who are to trade some security X.
X is trading at $10. with 100 issues on the room. assume no risk of default). all 10 have the same amount of cash (I'll come back to this later)the 10 guys are all humans. they all think the same (trust me on that). the room is bullish and everyone believes X will go to $20 soon. so based on their belief, cash-flow calculations, TA, EW, fundamental analysis etc. or whatever you like to call it, they all want to buy. even if 1 of the 10 is a monkey if the other 9 are buying he will buy too.
so lets say each has now acquired 10 stocks of X. market price of X is trading at $10. everyone is LONG.couple of days later X moves up to $15. what do you expect to happen? one might want to take profit already. but all expect $20 so why sell? at the same time another wants to buy 10 more @ 15 because he knows this is going to $20 - but hey - who is going to buy it from him at $20? maybe there is an idiot big enough left to think it can go higher or I can convince one of the other guys? you think $20 will ever be even reached!? how would you play it?
I'm not going to complete the thinking in this scenario, don't have time but although simple it's actually what happens in reality. the point I wanted to make was this: if all 10 traders are rational the price will be at a 'fair' price that all 10 agree upon. very few would want to disagree with 'the group'. this fair price will be fair, efficent, and accurate. there wouldn't be any speculation, trading - it would be frozen. so how is anyone to make money? so it fails.
to be able to make money it is REQUIRED that the market operate irrationally. if the market operates rational i.e. trade where everyone thinks it should trade - there would be no market, and no one will make money! this is why when you have 90% of the people who agree the market is under valued or over valued (probably rightly so) are wrong and lose money. earlier we assumed all 10 had the same amount of cash. now assume 1 has more cash than the rest. how can he use it to his benefit? in capital markets we call these "the biggest house in the jungle who SETs prices".
this market we're trading at the moment is a great example. round the corner it will take a magnificent turn just at the moment when most have gone insane, closed positions at a loss and jumped off the roofs. it has NOTHING to do with toxic assets buy-back, up-tick rule, g20 or whatever. the whole of credit crunch was the room full of 10 guys above on a grand scale. unfortunately the little guy sitting in his bedroom trading wanting to buy a ferrari totally forgets the significant players and political war-fare interest the market attracts. did you seriously think if you can turn numbers in a 'free market' from your kitchen then other larger parties (such as governments) have no interest in this? this is also another reason why it doesn't make sense to share your position with the public and if you have GREAT friends then you sure can make alot of money in the market.
when we were around 690 everywhere I looked the talk was about SPX @ 400 or 500? 550 or 560? or maybe bottom at 300? even war!?now when I take a look around the majority discussion is about SPX @ 950 or 960? maybe 1100 or 1200?If you've lost your life saving holding to your short from 700 then file for bankruptcy. but if you made a good entry from thursday and feel VERY UNCOMFORTABLE about it then you should know that you've made the right trade. it's a trade worth fighting for and believe in.
Have a good weekend..
