Well we know humans are living things and we know animals are and of course plants are too. But are markets really living things?
Most of you will have heard the expression ‘markets have memories’ and I am inclined to believe so. Because markets are made up of ‘humans’ and ‘humans’ have memories. And you may ask ‘what about the Instos?’ Well at times investors may have other adjectives for them but yes they are human too and their views are a part of the mass of opinion.
So if we as individuals have memories, can we collectively have a memory? Well I do not see why not and whilst many of you may not put too much store in that I am inclined to think the market memory is made up of collective human memories and this is a major subliminal driver of markets.
Our individual memories take many different forms. Some of us are painfully rational others can be totally subjective. Some of us have short memories – we forgive and forget easily. Some just never forget even the smallest of misdemeanours. I am sure we all can recall examples at both extremes. And of course there are a myriad of variations in between. We may also have biases about certain stocks because of past experiences – good and bad. We may have biases about types of markets and instruments and so on.
Our memories are multi dimensional and what may be important to you may not be important to me. Our memories can maintain a bias and sometimes I think to myself when it comes to trading I need to erase certain files in my memory or even defrag the brain or even format the memory space.
Of course that is really what technical analysis should be. It is supposed to strip away – lay bare if you like all our biases, subjectivities and emotions. And when I talk about emotions I include all within the range from ecstasy through to anger. And as an analysts and a writer I am aiming to provide each week something of value in all I do. And in this process I am on the receiving end of emails that cover the full range of emotions. That is part and parcel of a job that I enjoy enormously. In fact it is not a job and there is a blur between my job and fun. I digress. But I see your emotions in your emails. I am not talking about anyone in particular and please keep those emails coming! But there are very few emails that don’t show some degree of emotion. Some of it is well controlled some out of control!
It is not for me to see your emotions but. It is for you to see them, analyse them, understand them, and manage them. Because, unless you can do that I am not sure you can be a great investor.
Technical analysis can be like reformatting the disk, purging the soul – but only if we allow it to be. But many won’t allow the ‘technical’ process to be purely objective. They allow internal feelings and external information to interfere. We can all be guilty of seeing what we want to see sometimes – even unwittingly
I know pretty much all of the sins of investing. I am human. And you name it I have made all the mistakes at some point – including allowing emotion to get in the way.
Memory biases – whether short or long term – can create market mismatches and this is where the shrewd market players can take advantage of those who are allowing biases to rule their day.
Did you allow biases interfere this week?
Enjoy the ride