Lets try to correlate Stock market with one of the famous childhood story of SIX Blind men and Elephant, Story goes something like this
Once upon a time, there were Six blind man. Once They heard someone talking about elephant which make then curious what exactly is an Elephant. To satiate themselves they took a trip in city and with a help of a friend of them found an elephant. Now each man walked one by one towards the elephant to get a feel of it by touching and understating what exactly an elephant looks like.
- First man walked straight and touched its Head and declared elephant as a strong wall.
- Second man touched the Tusk and declared elephant as a Sharp piercing object like Spear.
- Third man touched the trunk of elephant and declared elephant as a Rope
- Fourth man touched the elephant leg and declared it like a Tree.
- Fifth man touched the elephant ears and declared it like a fan
- Finally the six man touched the elephants tail and declared it like a snake.
All the six man percived one aspect of elephant and each was right in their own way but none of them knew on how the whole elephant looks like.
As elaborated in above story Try to replace Elephant with Market and six blind man as Analyst or Traders. Every trader analyst have there views towards market at time all are right when looked from their perspective but market as a whole is like a wild elephant which moves in it own way and crush the traders who move against it ie. going against the trend.
There are people who say that predicting the market is like predicting the weather, because you can do well in the short term, but where the market will be in the long run is anybody’s guess.Lets see how some traders analyst predicts the market
- Some traders say in short term market is all about gambling and trading short term is a sure way to loose money. They believe in Buy and Hold approach.
- Some will assert that the markets are efficient, and yet some others would tell you that it is possible to make extraordinary returns.
- Some believe in only trading short term move backed by technical analysis,using varieties of system, Elliot waves Gann theory etc etc..
- There are some others, the so-called fundamentalists, who staunchly claim it to be a voodoo science. Multiple valuation models for equities like the dividend discount model, relative valuation models all exist side by side, each being relevant at different times for different stocks.
- Deep theories from various disciplines like physics, statistics, control theory, graph theory, game theory, signal processing, probability, and geometry have all been applied to explain different aspects of market behavior.
Looking at above theories its seems Mr Market (Elephant) in our example can accommodate wide range of system which sometime may oppose each other.
In the markets different methods are rewarded at different times.
- Trend follower looks like a genius in a trending market and foolish in a range bound market.
- Day traders may make a very good money in volatile market but looses in sideways market
- fundamental value investors can make money when value picks are in favor.
It is not the method that makes the money in the long term it is the discipline to stick with a consistent trading plan, manage your risk, and persevere through the hard times when you are losing. I know many different types of long term successful traders that trade completely different methods but I know no successful trader that is undisciplined or lazy.