The Frequent Misconception of Price That Disillusioned Investors

What is the big deal about price? Prices tend to fluctuate over time, and occasionally have a sudden rise and drop that results some people to conclude that prices are deviating from their “Real Value”. But the price under normal condition is no more real or valid than their higher or lower levels under extreme conditions. The new and higher/lower price reflects the new reality just as well as the previous price reflected the previous reality. Often you may hear that people forecast a trend and said price has deviated from the “real path”.

The most fundamental of all is that there is no such thing as an objective or “real value” as there would be no rational basis for any transaction to take place if there were.

Let me give you an example: take me as a stock seller and you as the buyer. When you pay $50 for that stock, apparently the only reason you do so is that the stock is more valuable than the $50 is (will go up in time). For me, the $50 is more valuable than the stock I am holding is worth (will go down in time) that’s why I am selling it to you. If there were a real value to that stock, neither you nor me would benefit from making a transaction equal to that real value, since what acquired would be of no greater value than what was given up. You may think why bother to make the transaction at the first place!

On the other hand, if either you or I was getting more than the real value of the transaction, the other one must be getting less. In this case, why would the other party carry out the transaction continuously since he/she is being cheated? Continuing transactions between you and me make sense only if value is subjective, each getting what is worth more subjectively.  The value that is in your mind will never be objective or real, only plain subjective. That is why it is always a behavioural game when you approach the market. It is always important not to be too objective as a famous Economist named John Maynard Keynes once said, “The market can be more irrational than you can stay solvent”.

Read the market as it is, the price that you see on the screen reflects exactly the market conditions. The fact that people got into losing trades is because they think what the market should do and why it is not doing (Price is getting too low from the mean, it will revert back to the mean soon) rather than thinking the market is doing what it is doing (Price is getting low simply because supply has outstripped demand).

The Frequent Misconception of Price That Disillusioned Investors
The Frequent Misconception of Price That Disillusioned Investors

One good example of such practice is exemplified in the post: EUR/USD – The Positive Tales in Price as we talk about the market as it is not a forecast about how far this pair will move from here to there.

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