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Discrete Dynamics in Nature and Society
Volume 6 (2001), Issue 1, Pages 37-47
http://dx.doi.org/10.1155/S1026022601000048

Generation of predictive price and trading volume patterns in a model of dynamically evolving free market supply and demand

Pinetree Management, Inc., 460West Mountain Road, Sparta NJ 07871, Greece

Received 29 May 2000

Copyright © 2001 Hindawi Publishing Corporation. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

I present a model of stock market price fluctuations incorporating effects of share supply as a history-dependent function of previous purchases and share demand as a function of price deviation from moving averages. Price charts generated show intervals of oscillations switching amplitude and frequency suddenly in time, forming price and trading volume patterns well-known in market technical analysis. Ultimate price trends agree with traditional predictions for specific patterns. The consideration of dynamically evolving supply and demand in this model resolves the apparent contradiction with the Efficient Market Hypothesis: perceptions of imprecise equity values by a world of investors evolve over non-negligible periods of time, with dependence on price history.