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But this is exactly my question... given that two parties disagree about the valuation of a stock, shouldn't they reach some kind of equilibrium where they agree that the stock is neither over/undervalued? (And if they're trying to sell out of one position to get into a more profitable one, why is that situation not going to reach the same sort of equilibrium?) Assuming both parties are INTELLIGENT, and don't let things like ego get in the way... they're both just trying to make the most profitable decisions.

It's true that people will always disagree about the valuation of a stock. But if you and I disagree, and we both assume that each other is intelligent the fact that you disagree with my valuation should lead me to change my valuation, and vice versa.

One of the things im not sure of is in the assumption that that people who cannot handle risk/ need to sell because they need $ for real life needs, have a negligible impact on the market (and hence we limit our discussion to people with sufficiently large bankrolls to handle high-risk but profitable positions). Is this true?

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It's a market, not just 2 people. You pretty much never know who you trade with when trading electronically. So you don't really know that person's opinion. There are tons of opinions on over/undervalued prices. There are tons of different trading strategies. There are individuals and funds with different wants/needs.

As far as an equilibruim goes, sometimes there are tight trading ranges that can go on for minutes, hours or days. But something usually causes a move eventually. Not everyone sees the move at the same time or ever for that matter.

I know I gave a kind of jumbled response, but maybe that helps a bit.