Networks as seen in Financial Investments
There exists two different kinds of financial investors: those prefer risky business and are willing to invest at any given time and those who prefer a safer and money-saving approach when investing. During economic crises and market failures, the first group of people are more likely to buy shares whereas the second group of people are more likely to wait and see the pros and cons of the situation for a bit. This now leads to the question: when exactly is it safe for people to invest? Waiting for a sudden change or improvement can take a long time and can also mean a lost opportunity of buying shares when they are still relatively low. For that reason, investors create charts to inform their buying and selling. Although it may seem very complex to perform this task, but anyone can create this chart (i.e. one does not need a degree in this field to do so). Additionally, even though these charts are primarily described in numbers, markets actually form a crowd behavior. This means that the charts are a great way to display patterns of behavior. However, individuals need to be aware of two important concepts that must be looked closely in the investing charts: trends and support/resistance levels. These two concepts will aid individuals to buy his/her intended investment more safely and/or cheaper.
For the longest time, most economists have predicted actions based on the random walk theory (or PageRank as learned in class). The random walk theory basically states that all price actions are unpredictable. However, studies have shown that the price trends tend to last longer than what the random walk theory allows. This feat is crucial to investors (and is the same idea shown in momentum investing). There exists three possible outcomes for the price– a trend of up, down, or moving sideways. For down trends, investors are very interested in when price reaches the trend line. Support and resistance levels, on the other hand, is the notion of when to buy and when to sell at a given price level. The importance of this is that investors are more likely to follow what was done in the past at this given price level again in the future when it is the same price level. Still, the most important part of the charts is the resistance level. If trades are generally above the resistance point (indication of an up trend) then the more careful investors are likely to step in and invest.
Source:
http://switzer.com.au/the-experts/michael-mccarthy/the-investment-toolbox/