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Think of a pendulum which swings from one extreme to the other. There is a natural energy in every dynamic movement from push to pull and back...
Whenever a stock rises, the trend of that
stock gathers pace. More and more investors start to convince themselves
that the stock will probably continue to rise indefinitely… So, more and
more of the 'herd' [including lesser performing fund managers,
institutional players, and individual investors] continue to ‘load up’
on stocks – everyone seems to believe the trend will continue for ever
more. This is the mistake that the "daft-money" [the herd instinct]
makes…
It is always when the majority of the crowd
is buying that the trend is at it's strongest and everyone assumes the
stock is going to the moon!
At this point, there are specific measures
such as volume measurements [specifically bid-side volume], accumulation
& distribution, time and sales sheets, which give away vital
information, which we [or more accurately, our computers] use to
calculate the 'trends' in individual stocks [analyzing all the Dow 30
stocks daily]...
When the MAJORITY of stocks are therefore trending up it is highly probable [80%+ probability] that the market will soon correct itself and drop.
Similarly, when only a MINORITY of stocks are trending up it is strong evidence amongst professionals that the market is set for the next rally. This is expected in a freely traded market - it is a necessary mechanism of a truly free market, which can be measured, quantified and predicted with a great degree of accuracy.
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