Price is volatile and fluctuated in between the fact and price is driven by emotion
Pricing is a valuation which is determine by human’s mindset. As we all know that value is changing over time, today’s value of one thing never guarantee that it has the same value in the future. Television is a good example to illustrate such concept. The value of a car todays is much lower than 15 years ago. Why? The fact has changed. The fact could mean a lot, including the production, the demand or the advance in technology etc.. Thus, the price is following the fact moving toward the same direction. Moreover, price is also fluctuated and volatile in between the fact. the fluctuation of price movement is caused by people’s emotion and sentiment, or so call “social event”.
People’s emotion lead to a fluctuated price. Let’s take the TV example again to demonstrate. The price of a specific model of car is actually changing and depending on the market. The market is a place where facilitates the trade between buyers and sellers. Sometimes we may find a discount on a car, meanwhile we may find no discount or even higher price occasionally.If people have positive emotion, they are more likely to spend money on car, otherwise, they would not. What’s the factors driving people’s emotion? The answer is the fact!
Price movement is a reflexivity.
In financial market, the price thereby is following the fact toward the same direction and fluctuated with people’s emotion in between the fact. When market players have an optimistic feeling on an asset which could be a stock, an underlying asset or bonds etc., they will create a demand driving the price beyond the fact, until they correct themselves, vice versa.
The price movement also is creating a fact at the same time. People will feel optimistic when they find an increasing price and then demand more.
To conclude, price movement follows the fact in long-term trend, while it fluctuates with people’s emotion in short-term movement. Finally, it will return to the fact once people found it
