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Action Plan

Such an environment can frustrate long-term investors. They may find that the chaotic conditions and frenzied activity that accompany, for example, an “unexpected” earnings release make it difficult to separate out what only seems important from what actually matters. For speculators, irrelevant news and fanciful rumors usually carry the same weight as “real” fundamentals, so long as they move prices in ways that offer opportunities for short-term gain. In addition, it can be difficult to avoid getting caught up in the constant whirl of activity. Much like the glittering serenade of a large Las Vegas casino, with its flashing lights, beeping slots, and crackling chips, there is a hypnotic allure to short-term trading. Unfortunately, unless you have the right emotional makeup and skill set—the ability to cut losses quickly, for example, or the knack for reversing direction in a heartbeat—rapid-fire trading is a very difficult and risky way to make money.

Nonetheless, keeping an eye on what speculative players are up to can offer interesting insights. It can also help to fill in some of the critical pieces of the supply-and-demand puzzle. Generally speaking, in a market dominated by traders, it is likely that their perspectives will matter most with respect to near-term action. How to tell? Look for the types of publicized chatter that signals this group is currently holding sway. For example, if daily market reports make many references to “technicals” and “charts,” that is a usually a sign that traditional fundamentals—and investors—are temporarily out of the picture. Alternatively, if news stories remain fixated on the degree of “bullishness” or “bearishness” that exists on Wall Street, it can also serve notice that short-term operators are in charge. Finally, if bulletins and discussions are centered on rumors and catalysts, it suggests long-term operators are probably on the sidelines, watching and waiting. Without the support of big money players, it is a good bet that prices will tend to remain choppy and range-bound.


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