The Stupid Market !!

If you spend enough time staring at the charts on your screen, there will come a day when you throw your hands up in frustration and shout, "The market is completely stupid! It has no idea how to behave!"

Every day, retail traders and investors curse the market. They watch a stock rally aggressively for weeks and complain, "Why is it moving up? There is no reason for this!" Or they watch the index bleed for days and say, "It should stop falling now. The economy is doing great, the GDP is up, the ground reality is completely different!"

This creates a massive psychological conflict. People look at the "ground reality" of the present economy and compare it to the stock market, and when the two don't match, they assume the market is broken, manipulated, or just plain stupid.

Here is the ultimate reality check: The market is not stupid. It is the smartest, most efficient machine on the planet. The reason it doesn't match your current reality is simple: You are looking at the present, but the market is looking at the future.

The Forward-Looking Machine

The stock market is a "discounting mechanism." It does not care about what happened yesterday, and it barely cares about what is happening today. The market is completely obsessed with what is going to happen 6 to 9 months from now.

Think of the economy as a photograph of the present, but the stock market as a telescope looking into the future.

Discounting the Worst

When a crisis hits or a negative rumour starts circulating, retail traders often wait for "confirmation" from the news before they act. The market does not wait.

The moment there is a hint that something might go wrong, the market instantly drops. It immediately "discounts" (prices in) the absolute worst-case scenario. It assumes the highest level of damage right away.

This is why, months later, when the terrible news is finally printed on the front page of every newspaper, the market actually stops falling and starts going up. The retail crowd is confused. They ask, "The news is so bad today, why is the market green?" It is green because the market already priced in that bad news six months ago. The worst is already in the price, and now the market is looking forward to the recovery.

Pricing in the Good

The exact same thing happens with positive news. If a company is secretly securing a massive contract or developing a game-changing product, the Smart Money figures it out early. They start buying. The stock price shoots up month after month.

Retail traders look at the rising chart and say, "This makes no sense. The company hasn't announced anything. The market is acting stupid."

Then, three months later, the company officially announces the massive contract. The retail crowd says, "Wow, great news! Now is the time to buy!" But the moment they buy, the stock crashes. Why? Because the market had already priced in that good news months ago. When the news finally became "present reality," the Smart Money sold their shares to the latecomers.

The Bottom Line: Trust the Telescope

People only realise the truth when it happens in the present. But the market has already moved on to the next future event.

Stop cursing the market for not matching the evening news. If the chart on your screen is going down while the economy looks perfect, trust the chart. The market sees a storm coming that hasn't hit the newspapers yet. If the chart is going up while the world seems to be ending, trust the chart. The market sees the sunrise before anyone else.

The market is never wrong. It is just living six months ahead of you.

-the trading job