Newtons Laws Of Stock Market Trading

Newton’s Laws Of Stock Market Trading
Read the​ oldest stock market wisdom from the​ world renowned physicist.
This revelation had me surprised too .​
I​ was idly flipping through my old physics textbooks yesterday when it​ suddenly struck me .​
I​ was amazed to​ realize that Sir Issac Newton’s laws of​ physics points to​ so many profound and important rules in​ the​ stock markets today.
So,​ here we​ are… the​ physics of​ the​ stock markets.
Newton's First Law of​ Trading
A Stock at​ rest tends to​ stay at​ rest and a​ Trending Stock tends to​ stay in​ trend unless acted upon by an​ equal and opposite reaction or​ an​ unbalanced force.
This law teaches us the​ same thing the​ old commodity traders will… that the​ trend is​ your friend .​
If a​ stock is​ trending sideways,​ it​ tends to​ stay sideways until a​ powerful enough market force takes it​ out of​ its trend .​
If a​ stock is​ trending up or​ downwards,​ it​ will tend to​ stay moving up or​ downwards until drastic changes happen to​ the​ company or​ the​ market at​ large creating an​ equal and opposite reaction .​
We should therefore always trade in​ the​ direction of​ a​ trend and always be vigilant for signs of​ an​ equal and opposite reaction or​ the​ unbalanced force .​
Such a​ force may take the​ form of​ a​ drastic change in​ the​ market sentiment at​ large or​ drastic change in​ the​ performance of​ the​ specific company in​ question.
Newton’s Second Law of​ Trading
The acceleration of​ a​ stock as​ produced by a​ market consensus is​ directly proportional to​ the​ magnitude of​ that consensus,​ in​ the​ same direction as​ the​ consensus,​ and inversely proportional to​ the​ mass of​ the​ stock.
This law teaches us that a​ stock moves up or​ down into a​ trend due to​ a​ force created by market consensus .​
How much a​ stock moves up or​ down that trend is​ determined by the​ magnitude of​ the​ market consensus and how massive a​ stock is​ .​
By massive we​ are talking about the​ price of​ a​ stock .​
The more expensive a​ stock is,​ the​ more well established the​ company has been and the​ lesser in​ percentage you will make out of​ the​ same move in​ absolute dollar versus a​ smaller,​ less massive stock.
The force of​ the​ market consensus is​ directly proportionate to​ the​ event that spurred it .​
If a​ company produces a​ breakthrough product on​ a​ worldwide patent,​ it​ creates an​ extremely strong market consensus that is​ likely to​ take a​ stock very far .​
If a​ company merely scores a​ marginally higher earning this quarter,​ it​ is​ unlikely to​ produce a​ market consensus that will go very far.
Newton teaches us to​ not only look at​ what the​ news is​ but also how well established the​ company is​ in​ order to​ determine how much momentum it​ will produce in​ a​ given trend .​
The same breakthrough that drives a​ small company’s shares up by hundreds of​ percentage points may perhaps move a​ big company’s shares only by a​ fraction of​ that percentage.
Newton’s Third Law of​ Trading
For every action,​ there is​ an​ equal and opposite reaction.
No need to​ explain this one in​ much detail,​ do I?
For every buying or​ selling,​ there must be an​ equal amount of​ buyers or​ sellers on​ the​ other side .​
The stock market is​ a​ zero sum game .​
For every buyer,​ there must be a​ seller and for every seller,​ there must be a​ buyer .​
The real question is,​ who is​ profiting from each of​ their buying and selling .​
There is​ really no such thing as​ more buyers today than sellers or​ vice versa .​
Every trader needs to​ understand that you can be on​ the​ wrong side of​ the​ table at​ anytime and only a​ sensible portfolio management system can help you go in​ the​ long run.
I have traded actively in​ the​ stock markets for over a​ decade and survived with ancient wisdom such as​ what you have read here .​
There is​ indeed wisdom to​ be found in​ every corner of​ our life and if​ we​ care to​ look carefully,​ we​ will never be in​ a​ lack of​ guidance.

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