The forces operating in a market are both exogenous, coming from the outside, and endogenous, coming from inside. Broadly speaking, those from the outside are studied in fundamental analysis and those from the inside in technical analysis. Fundamental analysis concentrates on such things as a company’s assets, balance sheet, style of management, state of the market and so forth. Technical analysis ultimately bases itself on human behaviour since the trends and counter trends originate in the minds, or rather in the emotional states, of the primates we are. But scientists are wrong to see the market as simply another complex system. Herding animal behaviour can certainly be observed (Note 1)but humans are at least partially aware of what is going on and can feed their views back into the system, thus modifying it. Also, the peculiarity of the market is that predator and prey are mixed together and each player takes on both roles at different moments.
What do we see when we examine charts and graphs of the Stock Market? We practically never see straight lines and smooth curves : market activity proceeds by short, sharp bursts which in the short term tend to wipe each other out while  nonetheless, allegedly, dancing to a hidden deeper music. The typical zig-zag
shape of the Dow and the FTSE demon strates how a burst of trading activity in one direction almost immediately gives rise to a burst in the opposing direction. However, since this correcting burst, a fortiori trend, is reactive not  pro-active, it is always one step behind. Like Alice in Wonderland, the counter-trend has a job even keeping up, let alone overtaking the main trend.
But eventually this is precisely what happens.  A tipping point occurs when the counter trend  ousts the main trend and itself becomes dominant. A stock is overvalued, certain influential traders realize this, sell their shares, the value of the stock depreciates and so on. Alternatively, a company starts recovering from a bad time, one or two sharp traders note this, buy when the price is temptingly low, and initiate a rally.
Need there be a reversal at all? Yes, because otherwise the market  would cease to function : there would be a credit bubble so big that it would swallow up everything else, or a crash so devastating that it would bring down the entire economy. If there is danger of this, those in charge immediately end the game by closing down the Stock Market and, if necessary, forbidding further trading until they change thew rules. In the tulip bubble of the 17th century, the price of a single tulip allegedly rose so high that it equalled the price of a house : it could clearly not go up as far as the value of the entire country.
“The trend is your friend”  — but is it?  The people who win out in the Stock Market are precisely those who buck the trend, sell stock during a rising trend that is, according to them, about to peak (thus contributing to this  very levelling off), or buy stock when the  market value, according to them, is about to level off and subsequently rise. The art is in judging the relative strengths of trend and counter-trend and throwing one’s own weight into the scales.
There are, in the Stock Market, always  two opposed forces at work since all traders, inasmuch as they are traders, rather than buy-to-hold investors, are both buyers and sellers. Traders in shares do not generally wish to keep the shares they acquire and buyers of futures certainly do not want the vast quantities of corn or rice they buy in anticipation. They have a single purpose,  to make money, but to achieve this aim at least two completely opposed actions are required, buying and selling the very same item, often many times over. This is the main reason why the Stock Market is such a peculiar place. To make a profit, a trader must successively live on both sides of the Great Divide, like the alleged Afghan fighters in the Civil War who drew two salaries by fighting for one side during the day and the other side during the night. On top of that, each trader is, or aspires to be, an ‘objective’ analyst who has a God’s eye view of the battlefield from up above.
The market is a unique place in that volatility is the norm rather than the exception : unlike most ‘curves’ that are studied in mathematics, the ‘curves’ in market graphs are always jagged and nearly always go up or down, rarely sideways.  The market is in a permanent state of disequilibrium : indeed, if it were otherwise no money could be made, or very little. Can any very general ‘laws’ be formulated which might apply to other event environments?
First, a definition. In terms of Eventrics a (market) trend is an event-chain that has persistence (repeats itself), direction(goes up or down)and dominance (has the power to attract other events and make them copy itself). In this context, the direction’ is price movement while it is the increasing dominance of an event-chain that provokes herding behaviour, sometimes producing hysteria. Momentum, a vector quantity, may be defined as  volume × dominance, i.e. the ‘spread’ of an event-chain multiplied by its power to influence other events.

Rule 1   A market event-chain’s momentum is rarely static but tends to increase or decrease, and to increase or decrease irregularly (not linearly). As the saying goes, “Nothing succeeds like success” and one ought to add, “Nothing fails so successfully as failure”.

But :

Rule 2   Every burst, a fortiori trend, ‘normally’ gives rise to a correcting burst/trend whose direction is opposite to the main trend but which always  lags slightly behind the main trend.

Rule 3  At a certain point (tipping point) the relation main trend/correcting trend reverses.

Rule 4  In certain circumstances the correcting trend  disappears altogether with devastating consequences for the entire event-environment : examples are a runaway credit bubble or, conversely, a run on a bank.

These rules are merely extrapolations from the data and will not enable you to actually make money on the Stock Exchange. To do this you need either to be lucky or be at once highly intuitive and self-disciplined (a rare combination); you also need to have a good understanding of what is going on in the outside world politically and economically and be able to derive rather more precise rules governing the fluctuations of share prices than the above (to say the least).
So what are these more precise rules? Elliott Wave Theory tells us and I refer the reader to thw writings of Elliott himself or his most lucid and successful follower, Prechter. There is, on the face of it, no special reason why ‘trends’ should be made up of three dominant and two counter-dominant ‘waves’ as Elliott believed. However, if this turns out actually to be the case, it can only be that there is some deep-rooted physical reason.  Elliott himself writes

“The forces that cause market trends have their origin in nature and human behaviour and can be measured in various ways. (…) Forces travel in waves….  [they] can be forecast with considerable accuracy by comparing the structure and extent of the waves”  (Elliott, Nature’s Law p. 81)

From my point of view, it is misleading to speak of market trends as composed of waves, since, mathematically speaking, a ‘wave’ is continuous whereas market activity is discrete, is composed of specific trades and these trades proceed by bursts, not continuously (Note 2). Also, Elliott does not say what causes these waves in the first place : he seems to think that they are universal and omnipresent — but are they ? If they are, why don’t we find them in other contexts?          S. H.      (30/06/12)

Note 1  “Shared mood trends [amongst traders] appear to derive from a herding impulse governed by the phylogenetically ancient, pre-reasoning portions of the brain. This emotionally charged mental drive developed through evolution to help animals survive, but it is maladaptive to frming successful expectations cocnerning future financial valuation” (Prechter, Conquer the Crash p. 25) As E.O. Wilson said in an interview for “We have Palaeolithic emotions, medieval institutions and godlike technology. That’s dangerous” (New Scientist 21 April 2012)

Note 2   “Whenever a market ‘gaps’ up or down on an opening, it simply registers a new value onm the first trade, which can be conducted by as few as two people” (Prechter, Conquer the Crash p. 93)     S.H.

         The image is  Perpetual Motion by  June Mitchell   (All rights reserved) .