New Discovery Leaves Stock Market Vulnerable

Copyright (c) 2008 Larry Parr

It has long been held that stock prices are random. How could they be otherwise when prices are set by tens of thousands of individual investors bidding prices up or down with no connection to each other?

The only problem with that theory is that we all know it's a load of rubbish and you can prove it for yourself.

Take a child's plastic protractor, the kind you can buy at any grocery store for a couple of bucks and place it on a high point or a low point on any stock chart you like. Now look at the 50, 60 and 70 degree lines.

How many highs and lows hit one of those lines precisely? How many trading ranges fit snugly between two of those lines? And when I say snugly I mean to the penny.

And while you're at it look for chart gaps. See how often one of the three protractor lines I mentioned cuts through the middle of a chart gap. For many charts they cut through the center of 100% of all chart gaps.

How could any of that possibly be true if market pricing is random? How could any of what you're seeing be true if there's no rhyme or reason to stock pricing?

If you know anything about Fibonacci lines and ratios you know that high and low points on charts are often pinpointed to the penny by Fibonacci lines.

Again, how can any of this be possible in a totally random system?

The answer is obvious. It can't.

That means the system isn't random. That means there's a pattern to the system. And if there's a pattern to the system then it must be possible to detect that pattern and to make use of it. It must be possible to construct a mathematical formula that will predict stock prices at least as accurately as that child's protractor.

Can you imagine what it would mean to you if you could see that pattern clearly, if you had that formula for your own? Can you imagine the riches that could be yours? It would be equivalent to having a crystal ball and seeing into the future.

As things stand now the vast majority of traders are merely guessing which way the markets will go. Oh, most of them convince themselves that they have valid reasons for their choices, but deep down in their heart of hearts they know that all they're really doing is guessing.

That's why the vast majority of traders lose money, or at best break even over the long run.

Is that true when it comes to your trading?

In other words, most traders treat the markets the same way they treat horse racing. Only when you bet on a horse race the betters have the courage and the honesty to call it what it is: gambling.

But if there really is a pattern to stock market pricing, and if that pattern can be defined by a mathematical formula, then making short-term trades on stocks would no longer be gambling. You would no longer be a monkey tossing darts at a list of stocks.

So how can any of this benefit you? How can you make money with any of this?

Start by admitting that you're doing nothing more right now than guessing which direction stocks are going. Even if you guess right several times in a row you're still doing little more than tossing mental darts.

Next, recognize that stock prices aren't random and never have been. Recognize the fact that there IS a pattern to stock pricing even if you can't clearly see that pattern just yet.

Finally, spend whatever time you must in decoding the pattern that defines stock prices. If you can break the code and find the formula that reveals the pattern, just think what that could mean to your future stock trading!

Because, ultimately, anything less and you're just a monkey tossing darts at a list of stocks.