On a chart, consolidation often looks like toppy behavior, and toppy behavior first shows itself as consolidation, but they are completely different situations with completely different outcomes.
Is there anything in the chart that allows you to distinguish one from the other before the situation resolves itself? Or is the resolution just a random throw of the dice, mysterious and unknowable in advance? And if that's the case, why is it often so easy to predict in advance exactly where consolidation/toppiness will occur?
A related question: Why do these situations resolve at all? Which is another way of asking: Why don't stocks trade in very narrow price ranges for extended periods, influenced only by supply/demand considerations, much like the price of eggs for instance?
What would the price chart of eggs look like in a world where at rare intervals an egg could be found that contained a valuable diamond, and at equally rare intervals an egg could be found that would blow up when you went to crack it, causing serious injury?
true enough math, implication was an agreement prior to purchase or sale. they make the churn which is big money. one week it's you at an agreed upon price/spread, the next we reverse. maintains relative price stability as well as a modicum of liquidity.
to say nothing of how thinly held stocks are in the hands of "individuals". most stock is held by generically speaking "institutions" selling it back and forth between institutions both long and short, resulting in continual profits for all involved. percentage wise i'd be curious to know how much volume daily is true retail. the ole lehman 105 transactions as it were? institutionally speaking.
Wiz, I'm thinking your egg chart would look like a topo map of the Himalayas...but...
Your implication of the egg behavior is that those are natural occurrences.
The question for you is whether consolidation or topping has any randomness left in these markets dominated by those actually controlling (OK, manipulating) the general outcomes? Any "natural" influence is long gone, isn't it?
"Your implication of the egg behavior is that those are natural occurrences"
For me, eggs containing diamonds or eggs blowing up would be very unnatural. Your right about the chart, it would be pure volatility.
For me, randomness = distance from mean. In a chart, randomness appears then disolves then reappears. The mean is always revisited then moved away from then revisited.
The question is always how much randomness will appear. There are limits to randomness. The limits expand and contract through time, but in theory the limits should be knowable (within a range) in advance and the rate at which they are expanding or contracting should be visible (or computable) in the chart at any given moment.
If randomness were total, as Pud often maintains, markets would shut down within a matter of days and cease to operate.