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Strategies & Market Trends : ahhaha's ahs -- Ignore unavailable to you. Want to Upgrade?

To: Bilow who wrote (1729)	4/6/2001 1:04:36 PM
From: ahhaha	Respond to of 24758

As an ex market maker I can tell you that the claim that Market stability is due to limit orders, is tenuous. If by limit orders you mean what is known as "indications", promises by large interests to buy or sell within bounds, then it is more true, but a highly liquid market, and that is defined both with depth of book and volume of transactions, is the proper criterion of stability. Stability can be defined as marginal price elasticity, or the convolution product of the component elasticities, int[dte(dD)e(dS)] where dD,dS are the measure functionals of marginal demand and supply respectively and e is the elastic function. which is what the fundamental players tend to use. I don't think any generalization like this holds. Fundamental players mostly take positions by market orders. You buy fundamentally when you get the fundamental conviction to do so, not based on where price might fluctuate to give you a slightly better price. Traders seem to use both equally. Their reasoning is something like, "XXX has assets worth $$$, so I'll buy as much as I can for 2/3 of that." No way. No one does that. It won't work anyway. The momentum investors, by the very definition, tend to buy the highs and sell the lows, making them more extensive. I tend to agree with this, but I captured it in my comment about stochastic action around the mean comment. This assumes that the bear market ends in a lack of interest rather than a panic. Panics are different. But generally, the problem with our market is too much emotion, not enough rationality. Too much pricing things because of the price of things, not enough pricing things based on their ability to pay dividends. This makes sense. I guess dividends would be another reason for stability at bear market bottoms, but we have to drop a long, long, long way before we see that... What, dividends? Dividends don't really have any business being in most stocks. You want a firm to use the money to increase earnings so the stock advances. You want capital gains. If you want income, you buy bonds. The idea of a little a growth, a little income is flawed, and non-optimal.