Granville's View of Market Dynamics
Smart Money buys low from the public and sells to the public at a higher price.
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The objective of the stock market section is to let you develop a market perspective for trading. (Re: Simulations for Skills Training.) The model would provide the point of view of the market (a projection) and the information you get from it.
To develop the view, you have to understand the market structure and dynamics. In Market Environment I discuss the key elements of the trading environment. Here we look at the market dynamics as understood by Joseph Granville. I examine other views here.
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The movement of the price of a share of stock (or bond or commodity or index) is what it's all about, just as the motion of the basketball or the tennis ball or the football is the bottom line of basketball, tennis, or football, respectively. Trading turns on the expectations for the stocks, and this breeds a world of opinions about what moves the market.
The expectations also breed a class of professional forcasters and forcasting models.
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The traditional view among economists is that supply and demand make the markets. But this view is tainted, says Granville in A Strategy of Daily Stock Market Timing for Maximum Profit. Some "bad guys" exert more than their fair share of the influence. The culprits are the informed minority, a crowd that doesn't play strictly according to the supply/demand rules. They buy low from the public and sell back to the public at a higher price.
According to Granville:
Those who make their living trading in the market (either on a day-to-day basis or longer swing basis) are in this wholesale-retail business but, judging by the number of people in this business, it is rather appalling how many will buy a stock at the retail price and end up by selling it at the wholesale price.
As with any other merchandise, for stocks to be "sold," the "public" (the "uninformed other" in the arrangement) has to be persuaded to buy them. But the buyers must have extra money to spend. Conveniently, good economic conditions (occurring at the top of the market) give the public the required bit of money and create an atmosphere in the government, media, and brokerage houses that makes the stocks irresistibly attractive.
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