In my view of how the market works there are only 2 ways for an individual to effect price movement: to trade or to convince others to trade. And price movement is amplified only if the market is moving in the same direction of the trade at the moment it is executed.
Right. And momentum traders trade in the same direction the market has been moving, thereby adding to the momentum.
If a run on my local bank has started, and I rush over to withdraw my deposits, I am contributing to the run on the bank (which, as you said earlier, may be a smart thing to do (at least in the absence of FDIC protection), but that's beside the point). What you seem to be arguing is that I am not
contributing to the bank run if, on that day, sentiment happens to shift and other depositors come to the bank to make additional deposits. On balance, the decline in total deposits may have slowed (analogous to a reduction in volatility), but it was those other depositors who caused it, not me. My activity had the effect of contributing to decline in deposits (the analog of contributing to an ongoing directional price movement in the stock market) -- it just happened to be counterbalanced by other depositors.
And if you are not concerned with an individual's impact "at the moment" he trades, then what time period are you speaking about exactly when you speak about volatility?
I'm not speaking about any specific time period in particular, but, like you, I'm speaking about price trends
, which only occur over time. It's meaningless to talk about a "trend" at an instant in time. A trend only happens over a period of time (which could be an hour, a day, a week, or a decade).
Momentum trading involves identifying a pricing trend, over some period, that is already underway, and then following that trend. The momentum trader executes a trade in the same direction as the trend. That trade has the effect of amplifying the trend. The amplification effect may be minimal (and, in the case of a typical trade executed by individual trader like yourself, infinitesimal), and the activity of other
traders may counteract the amplification effect, but that is
the effect. It has to be, as a matter of logic. And the bigger the share of the market momentum traders make up, the stronger the overall effect will be.