The Optimal Price to Trade

The literature on security selection and evaluation is quite extensive-Aside from the chart readers, however, there is little or no theoretical framework on the optimal trading price. The theories of technical analysts have been almost completely debunked by the evidence on the random walk nature of price performance. This state of affairs leaves the investor, who has decided to buy or sell a particular security, with very little insight as to the optimum price to trade. The random nature of price performance suggests that both higher and lower prices are likely to be obtainable in the near future. Thus, trading at the current market price may not be the best strategy. On the other hand, waiting for the stock to move decisively in the desired direction exposes one to the risk of an equally large movement in the opposite direction.