Since I am a technical short term trader and focus primarily on Behavioral Finance and price action, my analysis focuses on the ROC (change in the rate of change) of expectations.
A simple example would be that if investors are expecting good earnings from a company and the company acheives good earnings, I would expect the stock to be flat. It would take great earnings to move the stock up. Less than good earnings would push the stock down.
I like to look for levels on any asset where I feel that the expectations are extremely positive or negative and then take the opposite side of the trade. A simple example is if a stock has extremely positive expectations, current news, projected news and analysts comments AND the stock has been moving up dramatically, then I will look to sell / short that stock on the expecatation that statisitically, the change in the rate of change of those expectations will reverse. By definition, the change in the rate of change must always move in cycles. And when everyone loves a stock already and it is widely known, how many new buyers are out there to push the stock higher? Stock prices move on the change in the rate of change of money purchasing a stock. When that change begins to roll over from very positive to less than positive, that is another indicator of a possible drop in the stock.
This is what I have done for the last 35+ years – with various refinements over the years based upon the lessons and losses that Mr. Market has taught / given me.
For the more fundamentally oriented investors, I include the following:
What are the 3 most causal FUNDAMENTAL research FACTORS that determine the TREND’s path?
|ROC (rate of change) of GROWTHROC (rate of change) of INFLATIONROC (rate of change) of PROFITS|