There is no Holy Grail principally because market prices are determined by the attitude of investors and speculators to the changing economic and financial background. These attitudes tend to be consistent but occassionally are irrational, thereby defying even the most logical of analyses from time to time. Stock do not sell for what they are worth but for what people think they are worth. How easy can we explain that any market, stock, commodity, or currency can fluctuate a great deal in term of its underlying value from one day to the next? Market prices are essentially a reflection of the hopes, fears, and expectations of the various participants. History tell us that human nature is more or less constant, but it also tell us that each situation is unique.
Example: Three people own 100% shares of ABC company
- Shareholder A is investing for the long term
- Shareholder B bought stock because company's prospects are quite promising over the next six months
- Shareholder C bought stock because it is temporarily depressed due to some bad news
We see, the makeup of the company's holding will change over time, perhaps the short term trader will sell to another person with a long-term outlook. Conversly, the long-term shareholder may decide to take a bigger stake in the company, since he can buy at depressed prices. Although human nature is reasonably constant, its affect on the market price will fluctuate because people of different personality types will own different proportions of the company at variuos times. Even though the personalities of the players may remain about the same, the external pressures they undergo will almost certainly vary. Thus, the long-term investor may be forced to sell part of his position because of an unforeseen financial problem. Since the actual makeup of the market changes over time, it follows that the psychological responses to any given set of events also will be diverse. Because of this, it is very difficult to see how anyone could creat a system or develop a philosophy or approach that would call every market turning point in a perfect manner. This is not to sya that you can't develop an approach that consistently delivers more profits than losses. It means merely that there is no perfect system or Holy Grail. We shall learn that forecasting market trends is an art and not a science. As such, it cannot be reduced to a convenient formula.