Flexibility and Perception: Key Drivers for Trading & Investing

Having the ability to be flexible and adapt to almost all types of market conditions in trading global instruments can be an advantage for most tactical investors and smart main street traders alike.The level of sophistication in trading volatile markets can be learned through rigourous training and market experience, as it is the best training ground for self directed investors.

The 'Perception' of an investor in accurately analyzing the market can only be derived from proper due diligence. Where a collective understanding of the fundamental factors surrounding the market place is well aligned with price action and market's behavior particularly in the financial markets. As prices drive perceptions which drives changes in fundamentals. 

At certain times in the market place, this process do create a positive or negative 'feedback loop' that will continue until such time, it reaches a breaking point. Well known to most active market participants as the 'Cause & Effect' theory in trading the financial markets. And from George Soros exceptional market performance managing his Quantum fund before retiring have time and again used his Theory of Reflexivity' investing particularly in the stock market.

When prices move to the extreme, Mr. Soros would bet on a reversal much similar to the 'Contrarian Theory'. With the exception which he refers to the circular relationship between cause and effect. That most people who often invest based only from sound fundamentals surrounding the company, fails to consider relative price changes in the market. And media reporting has everything to do with this.

Post Major Market Sell Off: What signals to look for

The 'Concept of Equilibrium' is where the market finds itself in a process to 'freely-adjust' price levels rightfully even after unexpected major price movement or from a rapid melt down. And the adjustment process that leads to an equilibrium, where the underlying asset values are implicitly identified to be true and correct along side the actual trend direction of the market would take a relative number to stay well within these levels.

At times, because of the market's ability to diverge from equilibrium, the probability of a greater price action contrary to a prevailing market trend would simply occur. And this can be seen from the recent melt-down of stock market prices when it comes to specific market price behavior and actions made or even coming from both; momentum driven and technically motivated market conditions.

    

Great Reference:

Executive Summary on The Alchemy of Finance  by George Soros