How the Stock Market Works

The first impression that a beginner at the stock exchange market obtains is that this is some sort of “game” that is left to chance and good luck. Fortunately, this social “game” is governed by the nature of human behavior and by decisions that are made in face of the emotions that are produced in face of the ambition there is to make money quickly or when faced with the panic of suffering great losses in an unexpected way. This last point mentioned definitely makes it not be a game left to chance, and is governed by the balance of the demand and supply all throughout the evolutions of the price during the cycles. The historic profitability of the stock exchange, as can be shown, is much greater than the profitability of the financial system, but it has the inconvenience of being characterized by the cycles formed by moments of great peaks, then followed by big catastrophes. Bullish and bearish as well as boom and crash are all terms that are inseparable. It is impossible for one of these to exist without the other one. Defended by the environment of the peaks the boom comfortably begins to boom. At the end of the period, the situation looks like a balloon that is about to bust, and any happening can occur to make unravel, in a fatal way, a crash, the catastrophe that is expected by everyone. One of the laws of the history of the stock exchange is that a big stock market catastrophe never comes about without having previously been preceded by a period of exceptional increase and that there is never a boom that does not end in a crash. In order to understand the stock exchange all together it is important to understand the mechanism of the movements of a rise and fall, the bulls and bears, how the cycles come about, how they develop and how they come to mature. According to the logic of the stock exchange, it cannot be considered an axiom that good shares go up and those that aren’t go down. Neither can it be considered an axiom when the price of stock goes down when the economic situation is not doing well, and that, when it is good, it tends to go up.