In social media groups sometimes, I see people posting stock charts like
I have posted above and then start discussing whether operators are active in
this stock or there is some kind of manipulation and all that. However, I am
not denying possibilities of manipulation but in a market, which has high level
of regulatory framework is not that easy to manipulate. But there is also investing/trading common
sense that cause this type of movements in market.
There is an investment theory called 'Efficient market hypothesis'. This
theory states that it is not possible to outperform the market whether you have
access to technical analysis, financial information or any other insider
information.
In technical analysis we always use a statement called 'Price discounts
everything' means Every information that could influence the price is already
incorporated in to price.
So now the question is, is it possible to make money in market using
technical or fundamental analysis?
So the answer is a big yes...these both ways of analysis works a guiding
tool. There are some events in market when market becomes inefficient and if
you are aware about any kind of analysis whether technical or fundamental that
helps you to spot that opportunity to make money.
So question is when market becomes inefficient?
There are 2 major arguments taken against Efficient market hypothesis.
- The behavioural aspect: Individual or collective cognitive or emotional biases can cause inefficiency in price and gives opportunity to make money and beat the markets.
- Regulatory hindrances: such as restrictions on short selling and price bands and circuit filters sometimes also cause delay in efficiency of market and that also gives opportunity to beat the market.
The case discussed in above post belongs to our 2nd argument. Stock
is hitting upper circuit because of regulatory distortion and price will keep
hitting upper circuit until it incorporates impact of fundamental developments
that has recently taken place because of Patanjali acquired Ruchi Soya.
If this article will help you take take a gauge when you this type of price movement in any stock.
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