There are three categories of market participants: short-term, medium-term, and long-term. You need to figure out who is in control which requires a deep understanding of the markets. According to auction theory, there is a distinct behavior of these three groups. (See Also: AMZN Stock: 3 Reasons Why Investors Should Buy This Dip In Amazon.com Inc. Stock)
We are all familiar with the saying ‘for every buyer there is a seller’. Unfortunately, that is a necessary but insufficient condition. The buying and selling are intermingled among these three groups. If the stock movement seems mechanical, short-term traders are in control. Previous day highs and lows, yesterday’s close, etc. are all mechanical points. These traders want to stay within the range. The medium-term traders are the hedge funds that come in when the stock has a significant pullback and push the stock high but do not try to break the huge trading range (Think Ackman and Chipotle Mexican Grill, Inc. (NYSE:CMG)). The long-term traders are who you need to be able to identify. If the stock goes to new highs, these traders are in control.
Your goal should be to participate in, and not anticipate what Amazon.com, Inc. (NASDAQ:AMZN) may do next. Your goal is to determine what type of trader/investor you are. Knowing yourself can help you understand the actions of other market participants as the days unfold.
An understanding of market structure is more beneficial than static fundamental models. There is always some conflicting information in fundamentals, but market structure can help alleviate that paradox.
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