Remember that the stock market is always right and price is the only reality in trading. In case if you want to make money in any market, you need to mirror what the market is doing. On the other hand if the market is going down and you are long, the market is right and you are wrong. Moreover if the stock market is going up and you are short, the market is right and you are wrong.
Other things being equal in stature, the longer you stay right with the stock market, the more money you will make. On the other side of the coin the longer you stay wrong with the stock market, the more money you will lose.
In general every market or stock that goes up will go down and most markets or stocks that have gone down, will go up. The general thumb rule in this regard is the more extreme the move up or down, the more extreme the movement in the opposite direction once the trend changes. This is also termed as “the trend always changes rule.“
In case if you are looking for “reasons” that stocks or markets make large directional moves, you will probably never know for certain. Since we are pretty much dealing with perception of markets-not necessarily reality, you are wasting your time looking for the many reasons markets move.
A huge blunder most investors make is assuming that stock markets are rational or that they are capable of ascertaining why markets do anything. To make a profit trading, it is only mandatory to know that markets are moving – not why they are moving. In an ideal scenario stock market winners only care about direction and duration, while market losers are obsessed with the whys.
Stock markets normally move in advance of news or supportive fundamentals – sometimes months in advance. In case if you wait to invest until it is totally clear to you why a stock or a market is moving, you have to assume that others have done the same thing and you may be too late.
You required to get positioned before the largest directional trend move takes place. Theoretically speaking the market reaction to good or bad news in a bull market will be positive more often than not. On the other hand the market reaction to good or bad news in a bear market will be negative more often than not.