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What The Market IS and IS NOT
Typically, when humans encounter
concepts beyond our comprehension, we employ philosophy to
develop a working understanding. As we contemplate
these components, we appreciate the deeper sense of what it's
essence, but we
never KNOW all there is to know. These concepts include but are
not limited to: the nature of
existence, God, and The Market.
The Market is vast. It's an
extremely large machine with numerous moving parts which are not
totally comprehendible by humans. College economics professors teach that in free societies there
is the existence of efficient markets. Essentially, what that means is
that price always changes to equalize supply and demand which
fluctuate for random or unforeseen reasons and with
supply and demand thus equalized, all prices are exactly
"fair" at any given moment. In other words, there is
no possibility of getting a "good" or "bad"
deal on a stock. All stocks are selling for exactly what they
are worth. If you believe that, I've got a bridge I want
to sell you!
If you probe deeply into this line of
reasoning, you'll note that most of these Economics Professors
believe that any money made or lost in the markets is a
matter of good or bad luck. These academics do not believe it's
possible to predict the price fluctuations of stocks or the
market as a whole.
Herein lies the essence of why it's difficult to be a
professional trader and why most who try, fail... about 97%
failure. Although there
are several great "loopholes," the academics are
mostly right. They've been teaching the efficient market
theory in one form or another for hundreds of years, and they
have many studies to back support their claim. The theory makes a great deal
of sense. To some, it even seems intuitively obvious.
Yet, as Professional Traders we know that
it's possible to make a living by consistently taking money out
of the market. How can this be? This business is not for the faint of
heart. Patience and persistence is essential.
All traders lose money. Learning to lose
professionally is key... while closely monitoring the next
opportunity. Traders who learn what they
know and what they don't know (nobody will ever know it all)
early on and then trade accordingly do prevail.
These next statements are easy to say
but difficult to employ:
Cut your loses quickly but let your
winners run!
Control your fear but govern your
greed!
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