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Hello Crazy Gang,
Journalists love a bad news story. But they hardly ever seem to notice when the Dow is soaring or the Footsie puts on nearly 3% in a day.
Yet they're very happy to report when the Footsie has 'it's biggest daily drop in seven years' and that sort of thing. They fail to get excited, though, when the Footsie picks up nearly everything it lost in the next session.
The Footsie makes big drops usually because the Dow falls - not because of anything that happens here. The Dow has a habit of staggering back one heck of a lot and then lurching forward just as vigorously the next day.
That's how the big traders make their money. They engineer big falls, buy back the same shares at the bottom and sell 'em again when they get back to the top. Some people will accuse me of being childishly simple. Maybe they're right.
I suspect that City experts will always try and find a reason for shares to fall or rise dramtically. But it's mostly down to herd instinct. A few sell, so more sell and it becomes a rush to get rid of stocks. But if a bit of buying goes on, traders gain encouragement from one and another and the buying gets stronger.
Of course, there are influences on this process. Something has to start the first few sells or purchases. But once the process is under way its hard to stop and yet the underlying reason may be far too slight for the effect caused.
So when journalists find ways of making private traders like us shake in our boots, let's examine what they say very closely before we act. They often forget to mention the forces of the same argument pulling the other way. Rocking on!
To find out more about Malcolm CLICK HERE
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