The Real Truth of Chart Patterns

“The problem with manual trading is that we see patterns where they don’t exist. It’s like staring at the clouds.” — Jon Kafton

Clustering illusion refers to a cognitive bias in behavioral finance in which an investor observes patterns in what are actually random events. In other words, clustering illusion bias is the bias that arises from seeing a trend in random events that occur in clusters that are actually random events.

The largest example of clustering illusion in trading is a thing called “chartism” where we use charts to predict future trends, which is like predicting tomorrow’s weather out from seeing faces in the clouds.

Do you trade on the basis of Chart Patterns? Let me know!

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RECOMMENDED READING LIST:
Rich Dad Poor Dad (Personal finance book of all time)
https://amzn.to/36UAPY5
The Millionaire Next Door (Great Read to know how money works)
https://amzn.to/3nXnzZV
One Up On Wall Street (Peter Lynch's Best Advice to Stock Market Beginners)
https://amzn.to/35RgwM1
Think and Grow Rich (the ultimate book on money mindset and wealth)
https://amzn.to/3lTUkpY
The Little Book of Common Sense Investing (Awesome book on index funds)
https://amzn.to/3fxaEed

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DISCLAIMERS & DISCLOSURES

This content is for education and entertainment purposes only. I do not provide tax or investment advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal.

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