From the desk of Louis Sykes @haumicharts
Welcome to this week’s edition of Louis’ Look, where I write a brief note for the blog to identify the key lessons I’m learning every week. You can catch up on the previous post here. Today, I want to share what I’ve been thinking about psychology and its relation to technical analysis.
Let’s jump right into it.
Believe it or not, my first introduction to technical analysis was in the back of a high school bus. I remember glancing upon a Facebook post that described a guru trading strategy with a 98.57% success rate. Something clicked in my 15-year-old brain – the realization that I could be a successful trader in no time.
This is a great example of what I want to discuss today – The Dunning-Kruger Effect.
While there are many misconceptions about this topic, it can be summarized as follows: people of low ability have illusory superiority and mistakenly assess their knowledge as more generous than reality.
Fast forward to today, knowing fully well that I’ve only just enrolled in technical analysis kindergarten, I still find myself in situations where I overestimate my ability and knowledge. I’ve learned that falling prey to this cognitive bias happens to the best of us. For the 99.99% of us who don’t know everything there is to know about a topic, all we can do is be humble enough to identify the fact that these biases are always occurring.
The alternative? We become arrogant (I’m looking at you permabears).
Similar to the Dunning-Kruger effect, I’ve also been exploring the egocentric bias and its application to technical analysis. My friends studying psychology tell me it’s the tendency for people to think they do most of the work. In short, humans are hardwired to believe that we contribute more than others, simply because we only see the world from our own perspective.
Steve tweeted this out earlier in the week; it resonated with me and conveyed this point really well:
A lot of people think that once they get that “seat at the table” they have to stand out and shine.
In reality, the best thing to do is to just sit there and listen.
One day, your time will come to talk… and you’ll be all the more prepared for it.
With each new week interning with these guys, I continue to be humbled by how much I still have yet to learn. We have two options; to embrace or to be scared of what we do not know.
I’m choosing the former, what about you?
Thank you for reading this week’s edition, and as always, I encourage you to get in touch with me at email@example.com to let me know your thoughts. Do you agree? Do you think I’m wrong? Get in touch!