In my previous posting I mentioned that techical analysis is based on the believe that history repeats itself. Which means price have memories... It will remember the highest price, lowest price, volume and etc...
Does price really have memory? Logically, price is not a living being, so how can it have memory? But it does behave in a certain pattern... That is why you can predict (roughly) the support, resistance, trend or range... How is this possible? To understand this, we must first understand how is price determined and what influences it? In my previous posting http://survivingstockmarket.blogspot.com/2007/03/does-company-performance-affect-price.html , I mentioned that price is directly determined by the balance between the demand and supply... And these demands are made by human beings, who are alive and have memories and emotions. If price is to have memories, it will be the memories of these people...
As mentioned, technical analysis will sum up everything about the market into graphs to be interpreted. One basic concept about price is that everyone has an idea of how much the company is worth... So based on this perception, they will determine what is the most expensive price and what is the most bargain price... So, everytime the price for a particular stock is pushed up by demand, it will reach a particular price where most people think that it is the most expensive or the highest price offerable for the stock.. So, they will start selling and this is when supply overwhelms the demand and the price starts to drop. As the price drops, it will reach a price where most people thinks that it is the bargain price... So the demand will increase. When the demand overwhelms the supply, the price moves back up. And the cycle repeats itself...
So, whenever the price reaches the highest point, it will come down again and this point is called the resistance. When the price reaches the point when people starts to snatch it up again, the price will go back up, this is called the support.
Now, do you think the price have memories or people have memories?
Please take note... This is an oversimplified version... Further details will be posted in the future.. This posting is just the most basic concept... Do come back often to catch the details.. hehe...
Welcome
First of all, welcome and thank you for visiting my blog... Here are a few things for you to ponder about...
1) Do you feel shy when posting your questions or comments on blogs because most people there are already experts?
2) Do you have problem finding or asking the most basic questions about the stock market?
Well, you have reached the right blog...
This is a blog for anyone who wants to learn more about the stock market. Particularly for beginers. However, some of you may find it too basic. However, I'm not here to teach or to lead... But as I have mentioned, this is a learning blog.... And learning is an ongoing process. So if you are patient enough and continue to stay with me, you will be able to see our progress as we share and learn more with each passing day.
So if you have any questions or comments or suggestions, do feel free to post here. I will try to find the answers from other sources and experts elsewhere... And to those experts out there, please do drop by and give us comments and advices ya.. Thank you so much..
By the way, when you are free, you may visit another blog of mine that is about chinese tea culture... Do drop by and relax after a hard day of battle...
Tuesday, March 27, 2007
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1 comment:
Price has a memory because its players - humans never change. :)
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