Markets are nothing more than the reflection of human beliefs and feelings. It doesn’t matter how anyone decides upon a price at which they might buy or sell, once they “are in” it is a belief about the future (10 seconds or 10 years) that is at least the underlying REASON (ironic) they have a position.
Most of us think about the markets as an abstract series of numbers when really those numbers are just like avatars for the people behind them. Let’s suppose you trade using a complex mathematical algorithm which arbitrages gold and silver futures. It sounds as if you are trading off of the probabilities inherent in your analysis doesn’t it?
Well in reality you are trading off of your BELIEF (which you feel as the feeling of confidence – more or less so) that the model will accurately predict the movements of price in the future…. and that is always the way it is – global macro fundamentals or sub-one minute high frequency… it is always about what you BELIEVE/FEEL about what some other human will pay in the future…
Understanding this leads then to the absolute prerequisite that you understand your own beliefs, feelings and biases in order to produce the maximum in excess returns your trading is intended to create.
1. Markets are human
2. Humans make decisions and take action out of emotional foundations
3. Understanding one’s own emotional foundation enables one to make the best decisions about human markets.
Does this sound nuts?