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The ability to make money n markets, he stresses, depends critically on an individuals ability to make decisions independently of the crowd. Introductions: We learn from our mistakes, and we interpret the world in the light of our own experiences. Forecasting Financial Markets is a result of both these truths. The argument of Forecasting Financial Markets, then, is that flexibility in the decisionmaking process can be attained by generating three interrelated skills.
The first of these is an ability to understand the market in logical terms. That is, an investor or trader should have a philosophical approach to markets that incorporates a genuine understanding of the forces at work.
The point is that markets fluctuate — regularly and, according to traditional theory, unpredictably. If an investor does not clearly recognize this, then they will be unprepared for the reality — the terror — of the situation.
The second skill, in a sense, follows from this. An investor needs to be able to understand their own emotional response to market fluctuations. If market participants understand their own vulnerability to the influences of financial markets, and if they can recognize those associated behaviours that are potentially self-defeating, then they can do something about it.
In particular, they can adopt responses that are appropriate to market trends rather than responses that are hostile to them. The alternative, quite simply, is to become a victim. In other words, the signals must be based on predetermined criteria. Such a system need not be mechanical: it can have a facility to incorporate signals that cope with unusual circumstances or with investor preferences.
Market participants should, therefore, be directly involved in the system testing procedures, so that they are aware of both the successes and the limitations. This, of course, also facilitates a creative response to unexpected market developments. These three skills — the ability to understand market behaviour in logical terms, the ability to know the effects of the market in emotional terms and the ability to decide what to do in objective terms — are the basis of successful wealth creation in financial markets.
Further, they enable investors and traders to be detached from the results of each individual investment position in a way that enables them, literally, to enjoy the whole process. In this way, wealth creation and personal fulfilment become a way of life.
FORECASTING FINANCIAL MARKETS TONY PLUMMER PDF
Forecasting Financial Markets