Q&A_ Why price changes intraday and How?Ever wondered why price of a particular asset class changes multiple times in a day? How?
Well, here is my answer:-
1. The basic idea: All the prices reflect the “fight” between bulls and bears. Bulls make money when prices go above their "buy" price. Bears make money when prices go below their "sell" price. None of them is your friend here. They both want you to be “wrong” so that they can take your money.
2. The algos (bots): Computer can calculate faster than human beings right? Computers don't have emotions right? The bots operate through all around the world. They keep on shorting even if Human mind of individual traders struggle to short in "oversold" stock/indices. Now, you could've got your answer why the price keeps on falling when you thought that it won't fall further. Remember? 23 march lower circuit?
3. The statistics: Oh this is not boring as it was in school. If I ask you what's the probability of stock you traded going up or down? 50-50% right? You have to be right at least 50% of times with a risk-reward of 1:2, and you'll be profitable over a series of trades.
Bots always risk 1 dollar to make 2 dollar (at least). Then after 10 trades (5 wins and 5 loses) calculate the profit. (Income: 5*2 dollar = 10 dollar) (Expense: 5*1 dollar = 5 dollar).
Profit = Income - Expense
Hence, 10 dollar - 5 dollar = 5 dollar (your profit)
Above technique is tough for a human being due to his emotions, but bots are master at it.
4. Trading and Gambling: The trading is equally addictive to gambling. Trading also gives a "gambler's high". What is it? Well, when money comes in, it brings sense of power, the happiness money can buy in the form of material things, etc. The trading can be pleasurable (dopamine high) if your trade is showing profit. Similarly it’s nail biting if it’s going in a loss. Trading does not demand you a “college degree”, but PHD in “Emotional Discipline”.
5. The sentiment: Fundamentals of a company doesn’t change in a single day. Then, what changes? Answer: fear, greed, sentiment, hope, regret, etc. Why? Because:-
“Money is an very emotional subject”
Disclaimer: This article, by any means does not indicate that you should start trading in the markets. Proper knowledge, risk assessment, position sizing along with several other factors are required for the success in this field.
