The Market is Psychology

The market does not trade on value.  It trades on perception of value.   This portion of the Speculations will discuss crowd psychology.  How we measure it, why it turns, and when it is changing.

The underlying logic behind technical analysis is that it depicts the psychology of the investors of a stock, which is used to "forecast" price.  I think we need to divorce ourselves from the belief of forecasting price and instead focus on what the chart's say about the other investors (our opponents).   Are they becoming greedy, fearful, or unsure of their positions?

Consider a double top:

The failure to go higher on the second push suggests that everyone that wants to be long in is already in and no one wants to pay more.    Seeing a second high, however is not enough.  I would want to use an oscillator such as the force index and look at the MACD.  It should reflect that the buying pressure is not as strong.  In which, case we would look to go short.