Understanding Causes Of Market Movements by Melvin E. Dickover
It’s All In The Mind
An evidence-based model argues that the price movement of a chart is fully explained by cycles, support & resistance, and news-driven price impulses. We can use a cognitive psychology–based hypothesis to explain why and how cycles arise.
Traders would like to have a credible explanation of why the market moves the way it does. You have unsatisfying descriptions such as fear & greed or the battle of bulls & bears that give you no hint of what to do or how to trade. Explanations like profit-taking simply tell us after the fact that prices went down because people sold. I believe that these ways of thinking about the market hinder rather than help us. They explain everything but help you understand or predict nothing in particular. What is needed is an evidence-based model that explains market phenomena.
In this article I propose an evidence-based model that explains the causes of market price movement from a technical analyst’s perspective. This model, which I refer to as Mel’s Model of Market Movement, hereafter abbreviated as M²M², is designed to answer questions about why the market moves as it does; what edges are inherent in its very nature; and to provide insights that traders can use to see what is happening in the market clearly enough to trade successfully.