So and so many traders and investors are after the magic formula to succeed in the stock market. Does it exist? Astonishingly the answer is yes and no. Let me explain the no first.
The stock market, like all other financial markets, is tough competition. What one earns must be given by the other.
Is that really true for the stock market? This may seem to be a stupid question, but…
The prevailing opinion about the stock market is that it differs in that case to futures and options trading, or anything that works on a contract basis. Quite many people believe the stock market is a positive sum game whereas contract based trading is a zero sum game.
Unfortunately that isn’t true and a question for a another post, but even if it were true, there are still many intelligent traders and mighty trading houses out there, enjoying tremendous advantages over the private trader. This tough competition enforces in reality a negative sum game for the small investor or trader.
Then there is random. The future is full of unforeseeable events. Most things are only “foreseeable” in hindsight.
Take for example patterns in charts. In hindsight there is always something to spot, but it could have been some different pattern forming over a different time span. You see what is there and interpret something into it.
Proof: If the chart were created by a random generator, almost everyone would still insist on being able to detect significant patterns or signals. The chartist will always identify something “meaningful”, even in pure random.
Put both driving forces for market prices together, the manipulations of others and the ubiquitous random influences, and it should be clear that there will be no stock system based on some simple formula that is able to beat the market significantly. At least none that many people can use simultaneously.
On the other hand, there are abstract secrets that could be condensed into a stock trading system. It just happens that these secrets are for a reason secret. They are hard to uncover and it is even harder to crystallize this fluid regularity into a usable stock system.
Why are these secrets hard to uncover? Because they are the remainder that got not discovered by now and by the many!
This may sound like a tautology, but as so often with tautologies, it is simply the explanation. The easy things get discovered and exploited to the point where they do not work anymore and the remainder would work but is for various reasons hard to grasp.
Essentially, I think, the stock trading system search can only be an ongoing endeavor, and you never will be sure that you arrived at a stable point of success. You can have something looking fine for the time being, but whether it will work good enough in the future is unpredictable.