I have seen many emails coming in my inbox telling to buy some or other ebook which has tips or tricks to beat the market consistently. I came across many emails and tempted to buy some. One day I realized what is behind all these books. They are simply playing with people who do not have much of engineering or math background and convince them to buy it. Here is how they do it.
How the email starts
I am going to give one example that I came across in one email. The author starts speaking about instant success with reduced losses in the market. And of course he also includes some testimonies, I do not know if they are fake or not. Then he starts speaking about the Fibonacci numbers. He shows them like this:
0,1,1,2,3,5,8,13,21,34,55,89,144…
By now anybody will be surprised with the suspense he is going to create. Many people who already trade stocks think of this series in dollars and start thinking that stocks grow in this series. This is first thing to lure people.
Then he tells that it has something in relation to stocks only few people know and it requires expertise to find that out. So he says he found that and explaining to others through this ebook. He gives a list of benefits that you get. Then few people really buy it without even thinking that the author would have used those tricks for himself instead selling as ebooks to make more money.
Story behind the email
The Fibonacci numbers or some kind of theory they often use has no relevance in the stock market. Nor is it a coincidence. Surely the Fibonacci numbers approach a ratio of 1.618 if you divide two consecutive numbers. But he shows some stocks whose variation has some relation to this ratio or inversion of this ratio.
These numbers are not arbitrary but are some type of basis for many numbers. I mean you can show that any number can be shown to be approximately related to this number by manipulating in some way. The fact is that all changes in stock market do not coincide with this number. The example they give are selected such that they are close to these numbers. And the tips they give ultimately puts you another uncertain situation unable to find out which manipulation of this ratio will presently relate to the stock.
They give so many tables and different manipulations this ratio to arrive at a stock price change and the time duration. Now it is your luck that may help you succeed with those numbers. If you select one wrong number you will end up losing. But after that you will find that if only you had used a different number belonging to the table you would have succeeded. But there is no certainty before to particularly select that number. What this means is that they have simply transferred the problem from one domain to another domain wherein the variables are interesting to you and put you in illusion to think that your problem is solved now. But the problem is still there simply under a different clothing.
The best way to make money in the stock market is to strategically invest based on fundamental principles of economy and business and not some tips or tricks. Tips and tricks may seem to work for some people once in a while only to fool you. The simple idea of investing is to buy low and sell high which means buy any stock which is at its lowest price in the year wide range and wait for it to rebounce. Of course the fundamentals of the company should not be worse. Over a period of time you will see gains which otherwise would not have been obtained. You will atleast think over time that you have done like this and be satisfied with what you got. Remember failures do not do what they don't like but whoever does that only succeeds in whatever field you see.
Conclusion
As always the certainty is the key to solve any problem so we search some certainty related to stock markets. But the fact is that there are only few certainties which are clearly known to everybody but are often neglected due to simple but strong reasons. Any certainty claimed is only uncertainty represented in another way. Follow what the legends like Warren Buffet say and forget about short term thinking. The fact is that nobody really makes a lot of money in the market. You can only squeeze as much is possible in reality but not as your imagination shows seeing the stock price variations.
