As it’s weekend, I analyze and compare edges available in different sectors of “real” (let’s name it such for the sake of simplicity) economics and financial markets.
Take my business: we buy auto parts large wholesale knowing there’s market to sell them for smaller wholesale parties in our store or retail in our shop. What is this? MARKET MAKING. Buy bid, sell ask. It’s a bet on existing liquidity/demand, NOT on price changes in the future. Edge depends on efficiency available according to liquidity and is different for different products. Some wholesale parties of largely available (and high competition) products are sold with just 5% margin, while other products, especially retail, being sold with 100% profit margin are not uncommon.
Take production of goods or services: they produce something using certain amount of human or tangible resources and sell it for more than it took to produce. Again, basically it’s making the market through spread available depending on market efficiency. The more efficient the market is, the smaller profit margin is (see Samsung’s plummeting profits in smartphones niche where it once was a leader).
How many businesses exist in the “real” sector, which make a living trying to PREDICT the FUTURE PRICES? Probably there are some, but most likely those have access to some “insider” information, such as coming shortages in supplies etc. In other words, FUNDAMENTALS.
All these thoughts lead to conclusion that everything be it real economics or trading comes down to the same principles.
Is technical analysis using chart patterns largely used in “real” businesses? Why not? There should be a reason, right?
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