You misunderstand. The market is not driven by news. The market is driven by traders' reactions to the news. --Db
I stand corrected. It is by necessity that prices are determined by the traders' reactions. Anyone who says otherwise is a fool. My new question is, what drives a trader's reactions?
You're wasting your time, this wheel has already been discovered. Much of what you are looking for is part of behavioral finance. http://www.investorhome.com/psych.htm
dbphoenix & longshot, Emotions such as greed, fear, etc. are useful in identifying present-state qualities of the individual. When one can identify a fearful individual, one can then make certain decisions about that individual's future behaviour. However, two questions come to mind. One, how are these states identified? Do we attempt to determine the emotions of all market participants in part or as a whole, and by what mechanism? Two, whence identified what decisions can be made? For example, if we have identified the market as comprising generally fearful individuals should we be short-selling, or buying? This approach is valid but difficult to apply, thusly it may be advantageous take a different, more efficient approach.
oddiduro & links, http://www.investorhome.com/psych.htm Fascinating! Tversky and Kahneman ... "found that individuals are much more distressed by prospective losses than they are happy by equivalent gains." I have been told that Call Options are proportionally held to expiration at a much greater frequency than Put Options. The above may explain this phenomena, and in stocks may explain why selling an issue at a loss is so common. A stock goes up - but not enough for the trader to be happy, the stock goes down and the trader fails to sell from fear of excepting loss. These ideas are explained in more detail later on in "psych.htm". The "wheel" concept too is extraordinary. I will try to take this idea one step further to create, Principle II: Large-scale market movements are derived from circular human behaviours. The result of these behaviours is, loosely, a sine wave, which, due to the influx of capital, not fluctuating around a constant y-axis but a sloped line (or parabola, hyperbola, ...?). Note: This fits well with what I have often heard - markets don't change because people don't change, markets move on human nature, which never changes. Thankyou both.