Stock market trend lines / by kevin murray

Stock markets claim to be the fair trading of equities in a public exchange, for the benefit of public corporations so as to receive capital necessary for the growth and stability of their company, as well as being the go-to place for individuals, pension funds, and institutions to "safely" invest their money into the economy and the engine of growth of their nation.  To a certain extent, such a description is basically true, but it is only true to the extent that those investing in the equity markets, have actually done their due diligence before the investment of their hard-earned money; and further that such an investment, in order to really be considered an investment, should be done from the perspective of the long term.


That is to say, when someone invests in buying their own home, they are, in the vast majority of the cases, investing in the long term, because that is the home that they are going to live in, and they are not, planning to up and leave within a year, or a few months, or a couple of weeks, or even a couple of days.  So too, those that purchase a brand new car, and sign the paperwork for a car loan of five, six, or even seven years, are typically planning to hold onto that vehicle for the duration of that contract.  On the other hand, the stock market while having tax consequences, depending upon whether a security is held for the long or short term, as well as having trading rules, in regards to whether someone is considered to be a day trader or not, basically allows those investing in the market to do so, in whatsoever manner that they may be inclined to do so, which means that for some people, they may get in and out of the same stock, so bought and sold, that very same day.


There are a lot of reasons why some individuals, hedge funds, and institutions are day traders, but quite obviously the most salient reason is because these people, whether through specific trading tools, algorithms, or whatnot, believe that they can make money by virtue of getting in and out of trades, within very short periods of time, and sometimes these time periods are literally less than a few seconds.  The thing about the stock market in America is that it is a known factor, which can be analyzed; it is also highly liquid, and importantly it has enough volatility on a given day for many a stock, that the correct timing of trades makes it theoretically possible to make good money, from just reading the "tea leaves" correctly.


In point of fact, tools have been created, such as the Average Directional Index (ADX), which can make the signal noise of a particular stock, clarified; so that a trend line for certain qualifying stocks can be established, and thereby a trade can be made in either direction, taking advantage of that trend line information.  To say, as some have, that Wall Street efficiently prices each security correctly and accurately, based upon all available information correctly analyzed and interpreted, has never been true, and never will be true, for markets, almost by definition, always have inefficiencies contained within them, along with equities being subject to being over or undervalued, while often having trends established for certain stocks, on a macro or micro basis.  Those, then, that are seasoned and skilled technical analysts and further are not emotionally tied to any equity or position based upon ego or subjective reasons, are able to read and to thereby exploit correctly stock market trend lines.