What stops someone from just selling a stock at every peak and buying at every dip? Wouldn’t you be making money either way the stock goes?


What stops someone from just selling a stock at every peak and buying at every dip? Wouldn’t you be making money either way the stock goes?

In: 3

Because you don’t know when those peaks and dips happen. To sell/buy at a peak/dip would require you to know that, *tomorrow* the price will drop or rise.

If you do, indeed, know what the price is going to do tomorrow then, yes, go to the stock market and become a billionaire.

Do you know of a method that can accurately tell me when a stock is at its highest in a day? How about if it’s at the lowest for the day? I’m sure there’s several millionaires that would love to speak to you if you have that sort of information/technology, but sadly, nobody knows what the future brings.

Well that is the goal. But no one has created an accurate way to predict the future of a stock price.

There area methods of trying to predict what the price will do. Lots of different statistical models and different averages and such. People look at news along with technical indicators to attempt to form an accurate estimate of what the stock price will do and determine if that stock is a good one to buy, and when is a good entry and exit point

Some people are successful at it. Most are not.

How do you know it’s a peak or dip at the time? If it were that simple, lots of people would be rich from trading stocks. There are also what are called high frequency traders who trade millions at a time to make money even on changes of just pennies, but that requires access to super high speed networks directly into the trading exchanges to get best prices — Michael Lewis’s “Flashboys” book explains what they do pretty well.

Trick is knowing when a peak is a peak and a dip is a dip.

Trend that over time too, and that’s why people have entire careers around this.

Nothing is stopping them, it’s a free market .

The trick is knowing when the peaks and dips will happen. There are people that try to do this In the short-term by day trading on the price of Equities. There is also the security type of Option which gives them the option to buy or sell at a specific price, which allows them to time their transactions better to maximize profit.

That’s how day traders make money but there is no way to know if you are on a peak or on a dip is there?

In order to sell youd need to have a buyer. The difference between selling price and buying price is known as a “spread” If I sold say $10 on the market, at a $10 price I am especially lowering the price of my own stock (it I am the only seller that is) that SPREAD makes the difference. Remember markets have buyers and sellers.

Low demand for a stock means not much buyers and probably loads of sellers (or the price doesn’t move at all. High demand for a stock means loads of buyers and less sellers hence increasing stock price.

There used to be a good website out there that would sample historical stock data and allow you to click a button to buy and then reclick to sell. You would watch the rise and fall in real time and then try to time the market off what you were seeing. It was a great tool in showing how it’s impossible to know what is going to happen.

If you try to time the market what can easily happen is you buy a stock, say at 10 dollars. It rises to 15, and you think it will go down back to 10, so you sell the stock and profit 5 dollars, except the stock ends up going up to 20 dollars. Now, if you rebuy the stock at 20 dollars, you have to restart the process whereas if you had simply held you would have had 10 dollars in gain.

Its very, very difficult to predict when a peak or dip will happen. A stupidly small number of stupidly smart people are able to predict the peaks and dips at a higher rate than anyone else, but they keep this knowledge secret. If everybody could predict the peaks and dips the peaks and dips stop being predictable.