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The time intention of the trade

July 11th, 2010

There is another way to differentiate investors categorized by the time intention of the trade. First category is short-term investors who seek profits from price movement that last from a day to a few weeks. They buy some stocks today with the intention to sell it in a few days. In this case, they live in a very small time world, where hours often seem like years.

Second category is intermediate term investors, who focus on prive movements lasting a month to many months. Their time world or scale is much larger than previous kind of investors. Then the third type is the long-term investors. They focus on movements of many months to a few years.

Recognize investors by their time intention to trade is important to legitimate investment activity in the realm market. Along with the feedback loop, then the stability of stock price will be understandable. McDonald explain that, generally market doers ignored short-term traders. They think short-term trading is less important than long-term investing. But, take a closer look at the amount of money invested by them which are about 30% of daily volume or more. This is a rather large percent. And dont say that these traders produce short-term price moves that last a day or two, and can be ignored. This is totally wrong, because this is where chaos theory and the power of feedback loops would be happened. Panic and nervous of short-term investors would be followed by intermediate-term investors, and so on. Yes, in this feedback loops, investors behave lies on emotional reactions.

Reference: McDonald, Michael. 2002. Predict market swings with technical analysis. John Wiley & Sons, Inc. NY, USA.

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