Under the Buttonwood Tree, Why Technical Analysis
The case for technical analysis, argued from the origin of the exchange and the nature of a secondary market.
Under the Buttonwood Tree.
American Exceptionalism is based on technical analsis
There are many things that are extraordinaire about our Nation. We come from a long line of being different for starts. Until 1789 all other nations formed around the cultural and heritage of the society. Not us, we came from virtually every country in Europe and the UK... For whatever the reason, our country was a hodgepodge a real jumble of various cultures around which a nation was build and a constitution formed on 13 states in confederation.
The answer is fundamental to its products being reliability in their use. That the ownership of the shares has no direct connection to the company’s financial prosperity or loss.
It is a secondary market. The secondary market is 100% based on public relations (PR) data.
In other words, it is how the investing and trading public react to the news, the PR, which is the real observable event upon which rules are based vs. an abstract rational theory how the market should react based on expectations that the media has drummed up.
I am a Capitalist, love the system. Yet like any other love you accept it for what it is. What is Capitalism when it comes to the open market of stocks and shares? It is all PR and once you see this as a founding truth, you are head and shoulders above the rest. This first principle that the investment vehicle you are trading is in effect a “secondary market” you are in a better position to gain objectivity.
You have to know, that for Capitalism to have the ability to raise money, to gain financing for corporate business, through the sale of shares in the primary market (IPO) there has to exist a secondary market!
If there was no secondary market, the value of a privately held corporation is of little value except to the majority shareholders. Without a secondary market, the business has a much more limited range of ways to raise funds.
Unlike holding of shares of a closely held private company where you have direct connection to profits and salary and dividends and control.
In the secondary market your connection is indirect, no direct particiatation in profits, salary, bonus, dividends and management. Rather only indirectly through statements and reports of the fundamentals, which may or may not be translated into higher or lower share prices and or dividend payment; which depends on the mood of the public shareholders.
The Capitalism that flourishes today and the one I love is based on the stories being told under the Buttonwood tree, which is synonymous with the NYSE and no different since it began. May 17, 1792,
So these so called rules and connections of earning and intermarket relationships need to be keep in the perspective of the Buttonwood Tree, because it’s all PR. The only way to build a successful model of investing and trading is based on price first and fundamentals are a secondary consideration.
Primary market cannot function well without secondary market because they are interrelated with each other as well as interdependent.
On May 17, 1792, the story goes beneath a buttonwood tree on Wall Street and signed an agreement that grew into the mighty New York Stock Exchange (NYSE).
Stock is a term used to symbolize an investor's ownership in a company. Those who own stock are commonly called stockholders or shareholders. As a shareholder, an investor theoretically owns a percentage of everything the company owns or owes. The company's profitability, or lack thereof, determines whether its stock is traded at a higher or lower price.
While trading of debt and commodities has its origins in the middle Ages, the modern concept of a stock market began in the late 16th century.
A primary market is where new securities are created and offered to the public (for example through an Initial Public Offering or IPO). The secondary market is where previously issued securities (such as shares) are traded, i.e.: the stock exchange.
Prices in secondary markets determine the prices that firms issuing securities receive in primary
Markets. In addition, secondary markets make securities more liquid and thus easier to sell in the primary markets. Therefore, secondary markets are, if anything, more important than primary markets.
Why Technical Analysis? Why search for methods and rules based on prices?
Where this breaks down
- [Draft , Jack to add failure modes and conditions under which this framework breaks down]
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