This is something that I've recently been thinking about. Perhaps you have also-it does seem intuitive:
A black hole is a region of space in which the gravitational field is so powerful that nothing can escape after having fallen past the event horizon. The name comes from the fact that even electromagnetic radiation (e.g. light) is unable to escape, rendering the interior invisible.
Let's amend this for trading:
A black hole is the level in a market in which the gravitational field is so powerful that price can't escape moving towards after having fallen past the event horizon(s).
Euro $1.40 then $1.50. CAD at parity. $2.00 Pound (way back when). $100 oil. $1000 gold. 100 Yen to the dollar. 200 on GBP/JPY. 12,000 now 11,000 on the DOW.
These are black hole market levels with a gravitational field so powerful that price can't escape moving towards once it falls past the event horizon. It's like trading the inevitable.
If these look to you like psychological levels you're right, but the difference is that black holes are a force (or perhaps an active psychological point). Markets focus on these, but because the discussion usually centers around what will happen when they get there you tend to lose focus on the big picture-the big picture that says price has passed an event horizon (or horizons) and is now moving due to a force it can't escape.
There are several ways to identify black hole price levels. You feel them intuitively. You see articles all over that talk about "what will the Euro do when it gets to $1.50, or what will oil do when it breeches $100? Will the BoJ intervene at 100?
What's an event horizon? A Central Bank with a change in policy. Major changes in an economy's status that are obvious. Major changes in financial markets. How about when there is silence after price passes a level that previously had elicited loud protests. How about 7 Yuan to the dollar after Hank Paulson stops insisting on the Chinese letting their currency appreciate faster after they start moving it. Economies with growing deficits (weaker currency) or growing surpluses (stronger currency). There's a long list.
Hope this has been some food for thought. Come back and we'll discuss where some black holes are.
A black hole is a region of space in which the gravitational field is so powerful that nothing can escape after having fallen past the event horizon. The name comes from the fact that even electromagnetic radiation (e.g. light) is unable to escape, rendering the interior invisible.
Let's amend this for trading:
A black hole is the level in a market in which the gravitational field is so powerful that price can't escape moving towards after having fallen past the event horizon(s).
Euro $1.40 then $1.50. CAD at parity. $2.00 Pound (way back when). $100 oil. $1000 gold. 100 Yen to the dollar. 200 on GBP/JPY. 12,000 now 11,000 on the DOW.
These are black hole market levels with a gravitational field so powerful that price can't escape moving towards once it falls past the event horizon. It's like trading the inevitable.
If these look to you like psychological levels you're right, but the difference is that black holes are a force (or perhaps an active psychological point). Markets focus on these, but because the discussion usually centers around what will happen when they get there you tend to lose focus on the big picture-the big picture that says price has passed an event horizon (or horizons) and is now moving due to a force it can't escape.
There are several ways to identify black hole price levels. You feel them intuitively. You see articles all over that talk about "what will the Euro do when it gets to $1.50, or what will oil do when it breeches $100? Will the BoJ intervene at 100?
What's an event horizon? A Central Bank with a change in policy. Major changes in an economy's status that are obvious. Major changes in financial markets. How about when there is silence after price passes a level that previously had elicited loud protests. How about 7 Yuan to the dollar after Hank Paulson stops insisting on the Chinese letting their currency appreciate faster after they start moving it. Economies with growing deficits (weaker currency) or growing surpluses (stronger currency). There's a long list.
Hope this has been some food for thought. Come back and we'll discuss where some black holes are.