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  • Trading Stories - Investors Like Stories, Even Made-up Ones


    Human Nature Likes Stories, Right or Wrong

    Dr. Zhu note: The market is very uncertain, which makes most investors nervous and uncomfortable. The discomfort associated with the uncertainty of the market is so unbearable to so many investors, that they are willing to believe in stories, even if these stories are made up. Stories give investors narratives that they can easily relate to; however, very few investors have the critical mind to check the validity of stories. Investors beware! Most stories in the market are quickly made up to satisfy the insatiable need for explanations and rationale for moves that have already happened in the market. Stories make us feel comfortable, even if they are wrong!

    In this article, we tell a story originally told by Stanley Kroll in this book entitled "Kroll on Futures Trading Strategy". The best part of the story comes near the end.









    Conclusions

    1. Most of the news you read, reasons given on market moves are simply unfounded, although you still want to hear about them, because they SEEM to give you a sense of certainty, in a mostly random enviornment - the rationale gives you psychological comfort, even though most often they are made out of thin air and are simply wrong - it is very natural for people to just make up reasons, excuses, and stories! I am not saying this is right or wrong. I am saying this is just how human nature IS;
    2. It is human nature that we want to hear stories, narratives, becuase they seem to "make sense";
    3. In the market, most of the real reasons are hidden, often the real reason comes out (if it comes out at all) after the move is over, then it is too late to act on your knowledge - by the time you know the "why"s, the move is very likely to be over already or is about to be over;
    4. One of the biggest mistakes the public make is that they ASSUME that the market is SUPPOSED to make sense (i.e., the market is logical"). But the market is like a battle field with many participants with their own agendas. Thus, the market is filled with misinformation to mislead you (so that you can lose and others can collect the money you lose). Do not believe everything you watch on the TV, you hear on the radio, or you read in the newspaper about the market!
    5. In the market, stop asking "why"! By asking "why", you are actively looking for a reason, a rationale, an explanation. You are seeking an excuse. By putting yourself in a mindset of seeking out the "why", you will be more likely misled by your emotions and your natural tendency to seek comfort. In the market, it will hurt you if you are too curious about "why" a move is in place. There are reasons of course, but these reasons are hidden from you, until the move is over, or forever. If you MUST figure out the reasons, the "why"s before you invest, you have automatically eliminated 99% of the big opportunities coming your way.



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