CTC,
In theory, of course a flurry of buy orders followed by an equal-sized flurry of sell orders should move the market up and down an equal amount. Let's assume that's so. (Far be it from me to let the real world intrude on a good theoretical conversation) But if, for whatever reason, there are more buy that sell orders or vice versa, the price will move accordingly. Momentum players jump on something simply because it's moving and turn it into a giant Ponzi-like scheme. Indeed, a number of Schwab brokers have told me they get telephone orders to buy a stock and, while they're waiting for the fill, the customer asks what the company does. The customer bought because the stock moved. It seems to me obvious that any given day's trading--whatever the reason for buying or selling the stock--is only a small percentage of the float, yet it moves the price for everyone. In theory it is possible for every momentum trader to make money--in theory. But an option, for example, is a true zero sum game. If an option goes up, the buyer wins, the writer loses. If it goes down, the buyer loses, the writer wins. For every winner, there's a loser. There's no such balance in an auction market. A few people, trading at the margin, set the price for everyone.
Best,
--Steve |
