Gonzo stock-market trading | BusinessMirror


Every generation or two, an author comes along that is able to provide an insight to a particular time and place, giving the reader an undiscovered perspective. Dr. Jose P. Rizal with Noli Me Tángere and American Mark Twain’s Adventures of Huckleberry Finn offer a wonderful narration of the Philippines and the US in the 1880s.

Sometimes, authors who accomplish this in the process create a “new” type of writing. Truman Capote’s In Cold Blood was an accurate telling of a brutal murder of a family but was written as if it was a typical fiction novel.

Hunter S. Thompson was a journalist rather than a novelist whose first work—Hell’s Angels: The Strange and Terrible Saga of the Outlaw Motorcycle Gangs—carried on this tradition. But in a piece for Rolling Stone magazine, he was assigned to provide some material about the Mint 400 desert off-road race. Not being able to actually see the race in progress and fueled with copious amounts of LSD, amphetamines and tequila, what finally hit the page was later called “gonzo journalism”.

The line between fact and fiction is heavily blurred and is told from a first-person point of view. Accuracy is only in the eye of the beholder. Were the dust clouds at the Mint 400 race the spirits of dead Native Americans as Thompson believed? Or was it the drugs? Who knows and more important, who cares? From the author’s point of view, the spirits were real and that is all that matters.

The psychology of the stock market price-movement trends from the peak of Maximum Euphoria to the bottom of Maximum Depression. At some point in the decline, the dominant emotion is “fear”—fear that the decline is real and prices will go lower. At some point after the bottom and prices begin to rise, the emotion is “hope”—hope that the rally is for real.

However, at both of these points, both emotions are strong. Going down, there is the fear but also the hope that there will soon be an upside recovery. This is what keeps investors holding losing positions and not running away. Likewise, as prices begin to rise, there is hope that prices will continue going higher but also the fear that it is all a trap. That keeps investors from buying in at the beginning and missing the first wave higher. In both instances, some investors will not make any changes and eventually sell at the low and buy at the high, the worst possible scenarios.

Thompson’s dust devils may or may not have been spirits of the dead. But to him they were real. No one knows what he might have thought if drugs had not been involved. The Philippine stock-market index has risen from 7,300 to the current 7,900 level since the end of March.

Gonzo stock-market trading is the inability to know what the reality is and to separate fact from fiction. Various experts will guarantee that the market is booming and an equal number will give you valid reasons for the coming doom. These are our stock-market drugs, which need to be avoided.

Stock prices do not move with a clear trend based on events. They move on money flows that often go against what the events say the money flow should be. Not all issues go up or down together. In the current situation, after a definite bottom, go with hope and be ready to change your emotion and response based on what you see. Not on what you think you see.


E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.


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