The Tale of Patterns and the Human Condition

Louis Sykes
March 16, 2022

Anyone familiar with the endeavor of trading has eventually realized the flaws of our human instincts. This isn't isolated to investing.

It's a widely documented phenomenon that we're constantly susceptible to subconscious biases.

We're approaching this from the lens of technical analysis. But apophenia is universal to the human condition.

Apophenia: the tendency to perceive a connection or meaningful pattern between unrelated or random things (such as objects or ideas).

Let's run through some examples and see how it applies to trading.

Example No. 1

The above is a 1937 mural by Italian artist Umberto Romana. "Mr. Pynchon and the Settling of Springfield" depicts the founder of the present-day Springfield, Mr. Pynchon, in pink, settling the town's creation.

But if you look closely, you can see a bare-chested Native American looking like he's about to take a selfie.

Of course, it isn't an iPhone.

It's a shiny, black mirror.

Example No. 2

Too often we forget the evolutionary forces at work that made us the people we are today.

The forming of modern humans began 200,000 years ago. Those with greater sensitivity to their surroundings and environments survived in this period, while the genetic predisposition that discouraged awareness slowly withered from the population.

The humans and tribes that ran away when they heard rustling in the bushes survived, while those who walked toward it met their fate.

After thousands of years of natural selection, present-day humans are now programmed to scan their surroundings for common patterns efficiently.

Though, many times, particularly in modern societies without any environmental pressures, it can often be misleading.

Take this rock formation.

Or is it a face?

A predator?

Example No. 3

This is a less serious example, but I'm sure you're catching the drift.

These are examples of all pareidolia, a visual subset of apophenia.

While apophenia describes falsely seeing patterns, pareidolia refers specifically to visual patterns.

Navigating Apophenia

We're shaped by our personal experiences in the world, which can often lead us to falsely interpret patterns.

As a trader, it's your job to sift through data, find patterns, and ultimately profit from them. At the same time, the human condition and cognitive biases that come with it are at the helm of our decision-making process.

An underappreciated element of risk management is emotional intelligence -- being aware of the biases that can misguide your interpretation into making a wrong decision.

We can't change our biology. But we are in control of remaining mindful of this constant challenge.

Ultimately, this only reinforces how we should always doubt our subjective interpretation of the world around us and the things we experience.

Navigating the world, and particularly financial markets, doubt is your friend, not an enemy.

You agree?

We'd love to hear your thoughts!

All Star Charts Team

 

 

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