If you’re reading this I’m going to assume that you are human. As humans we seek to make sense of our World. Our senses receive billions of pieces of information every day that our minds must consider, decide if important and categorise if found to be salient. We often try to find patterns in the information so that we may analyse similar pieces more efficiently in future; if we remember certain sounds we can draw conclusions much quicker for example. This process seems symbiotic with the desire to create permanence.
A permanent platform to base our analysis from enables more brain power to be diverted from considering our safety and medium-term plans and direct it toward dealing with information and planning for the future. At a tangible level we create homes to live in so we need no longer worry about the weather or predators; this allows us to plan for the future, to improve on what we have now and continue the advancement of the species.
This desire for permanence can sometimes be at odds with the information that we are receiving through our senses. Our World is always changing, from the Earth’s global climate to socio-political changes things rarely stay the same for long. Perhaps the most volatile changes come from ourselves and other humans. As an example we may buy the latest mobile phone believing it is the best we can acquire at the time. Soon though advancements in technology and marketing convince us that the new model is a much better purchase. The level of permanence that we had with the first handset is cast aside in pursuit of progress.
This conflict between the pursuit of permanence and the transient nature of life usually causes little trouble; we understand some things change and others stay the same – at least within our greater perception of permanence which is generally our lifetime.
We must be aware of our search for permanence when planning to trade the market and writing a trading plan. In very basic terms we can think about our expectations when trading a strategy. Especially new traders will expect – whether they admit it or not – a trading strategy to produce a positive outcome every time it is employed. That is to say if one is trading bat patterns, one will expect every bat pattern to complete and make a profit. This doesn’t happen of course. Sometimes other factors get in the way; maybe some fundamental news is released which takes precedent over the protocol of the bat pattern. When this happens it can be VERY frustrating and VERY tempting to assume bat patterns don’t work and ditch the trading strategy. The truth is that if you trade enough bat patterns they work more often than they fail so you will end up with a positive outcome over time. The fact that sometimes they will lose you money can be very hard to accept.
Our human desire to find patterns in information is the main reason why many phenomenons in trading exist anyway; we like to see Gartley patterns as we like to be right so when we see a potential pattern completing, enough people trade it to make it a valid pattern and move the market. The same theory can be applied to Fibonacci trading (though this is arguable) and in fact pretty much all trading strategies. If enough people buy into them, they become self-fulfilling prophecies.