‘Stocks are going up.’
At first reading I would suspect that most readers would not have an issue with that statement. It’s quite common for us to hear such claims, and most of us would have made similar statements during our trading lives.
But what does it really mean? Does it mean that all stocks will go up? Surely not, as even during bull markets some stocks will fall. The reality of markets is that some stocks rise and some fall each and every day. Reducing this action to a simple generalisation is lazy, and poor analysis. What if the overall stock market does go up but other assets or inflation rise further? In that instance those who bought stocks may actually have lost out.
There is an incredible amount of bull$**t in this business. (I will call it ‘noise’ from now on.) Despite huge progress in the understanding of trader psychology and decision making, noise is still prominent in the trading and investing industry. There are a number of reasons for this (as I explain in chapter 1) but most relate back to the domination of the media by brokers and analysts, instead of traders. Currently most retail traders are, unsurprisingly, confused by all the noise and they too often end up following unreliable analysis.
In my first book, Technical Analysis and the Active Trader, I exposed the flaws of technical analysis, one of the most widely used forms of analysis in the business. I showed that chart patterns, moving averages and other technical tools are unreliable ...