No. of Recommendations: 6
Jim:
I'd add a small refinement:
...the weighted average of what all investors who are watching and willing and able to consider a potential trade that day.
People who "buy and forget" for months or years at a time have no effective influence on market prices. Their votes don't get counted. In effect, it's only the votes among the people with eyeballs on screens that set the price. Arguably they aren't the most rational ones on average, which might explain a lot about price movements.
Jim and others might consider a refinement to the refinement: prices are affected only by the small subset of investors who are willing and able to consider a potential trade, and who actually get around to putting in a buy or a sell order. And you might even say that a buy or sell order that is far from the current bid and ask have no effect either. In fact, it is really ONLY the 2 investors who are currently asking for the lowest price or bidding the highest price that are influencing the current quote. If they can come to a deal, then it will be the next 2 investors, a few seconds/minutes/hours later, who are the only ones affecting the price. Having eyeballs on screens, but not commiting to buying or selling, won't do anything to the price.
dtb
