Page 88 - THE MARKET WHISPERER

86 PART 3 - Market Analysis Fundamentals

relevant information. Don’t try to argue with the market. Many before you
have tried and failed. Any attempt to force your opinion or hopes on the
market is predestined to failure. Even large players in the stock market,
who truly have the ability to slightly shift the market, are aware of the
market’s forces and consider their moves with due gravity.

Over time, I also learned the purposelessness of disputing the market.
For example, one of my rules (which we’ll discuss further) is that on any
day that I make three consecutive losses, I stop trading. My experience
has taught me that if I continue, I just keep losing, since the psychological
impact of three losses at a time makes me try to force my will on the market.
In that battle, I can assure you, the market will always come out on top.

Market Forces: Bidders and Askers

Understanding the market means first understanding the forces controlling
it: in other words, gaining a deeper understanding of the interests of
buyers (bidders) and sellers (askers) and the impact of their interests. It
is customary to say that if bidders control the market, the price of a stock
rises, and if sellers are controlling, the stock price will drop. This is true in
general, but too simplified and appropriate to a novice trader or amateur
investor. We know that bidders want to buy cheaply, and sellers want to
sell for the highest price they can get. For investment banks, who buy and
sell for institutional clients and are remunerated according to the bid and
ask prices they procure for the clients, buying cheaply and selling at higher
prices gets translated into action. We, the small traders, can do nothing but
follow in their footsteps.

Let’s take a look at the following: one fine morning, a trader in a large
investment house on Wall Street is instructed to buy 500,000 stocks of
Company X. In anyone’s view, that’s a lot of stocks… Will Company X’s
stocks open on that same day with a rise or a drop in rate? The answer
depends on multiple factors, but because the bidder wants to buy a huge
amount of stocks at the cheapest price possible, the bidder will first try to
make the stock price drop. The bidder may start the day by selling a large
quantity of stocks as soon as trading opens, igniting a wave of sales. When
the stock drops to a price that is sufficiently low in the bidder’s view, the
bidder will then start buying. Simply put, the buyer’s control over the stock
caused it to drop instead of rise. A trader following the stock’s movement
may accidentally think the stock is facing a day of downward-spiraling
prices, when in actuality that was only at the start, followed by rising
prices for the rest of the day.