Most market participants like to believe that the process of investing and trading is based on valuations, mathematics, potential growth, interest rates, and a host of other hard facts that move stocks and the stock market. All of these things do matter at times, but in the short term, it is all about emotions. What most traders are really doing is navigating the emotions of other traders.
The specific details of a stock don’t matter much in the very short term. Fundamentals or news flow may trigger a move in a stock initially, but then the emotions take hold as the price action shifts, and that is what we really are navigating after a certain point. If we want to navigate the action effectively, we have to start operating as psychologists rather than stock analysts at certain times.
Many traders have a hard time making this sort of shift. They want to believe that the price of a stock is anchored to fundamentals in some way….