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Targets for stocks, who initiates them? and what if the stock don't meet the target?
There are hundreds of different methods for price projections. All of them rely on self-fulfilling prophecy. I there are enough people that believe in targets they may work, otherwise they will not.
Best thing to do, is not to listen to people that that belong to the category "Who are they ... ?" Not listening to them can save you some money.
If the targets are not met, what does this mean? do the "speculators" think the earnings will not be met? I know you told me not to listen to the people, but ES and DOW makes a HUGE difference to the price of the stock, so I think its kinda unfair the speculators putting a target on a company. Sorry Im new to all this, but its interesting.
Market price is just a temporary equilibrium of buyers bidding price up, and sellers driving price down. If an upward target was not met, it simply tells you that there were not sufficient buyers to drive price up. If a downward target is not met, it means that there were not sufficient sellers to drive price down.
Price projections have to be understood in terms of probabilities. I use different methods of price projections to exit positions, for example
Of course you can combine several of these methods to determine cross resistance or cross support and indicate this as a price target. The main point about markets is that they suffer from permanent bipolar disorder. So you cannot really tell where price will end up.
The only thing that can be detected is price rejections or failure. If price fails to move lower, than it is likely - but not certain - to move higher. So you may expect that the Gaussian random distribution temporarily shift to display a fat tail such as a Levy distribution. In this case market will look for the next level up that can be tested.
To identify this level up, you would need to know, how all the others will behave. This comes back to Keynes' beauty contest. You do not choose the most beautiful girl, but the one, who you think the others might choose as most beautiful girl, or the one who you think that the others think that the majority might choose as the winner, and so on. You get that feedback pattern that drives prices leaking into your thoughts.
Once the target has been met, the bipolar disorder sets in again and you need to wait for a clue, best any type of failure, to find the next directional move. During the bipolar disorder attack the market stays rangebound, and that is what markets usually do.
That is not really fair to say they are self fulfilling prophecy. There are certainly many many people grinding long hours to come up with these numbers. If they have any basis in reality is another story just because of the difficulty of the problem.
