Environmental Factors and Chart Reading

I happen to think that charts provide important clues to the behavior of participants in the various financial markets.

Of course there are many ways to read a stock chart and consequently it can be more of an art than a science, so when I see some related scientific studies, I tend to take note of their conclusions. One example is Do You Want to Believe? which appeared today in Science Friday.com and discusses an experiment in which subjects had varying degrees of control over their situation and were tested on how likely they were to see imaginary images embedded in snowy pictures

Jennifer Whitson, one of the authors of the report, describes the findings as follows:

“People see false patterns in all types of data, imagining trends in stock markets, seeing faces in static, and detecting conspiracies between acquaintances. This suggests that lacking control leads to a visceral need for order – even imaginary order.”

The bottom line: if your investments have been faring poorly lately and you have had trouble reading the trends, make an effort not to be overly reliant on charts – or at least make sure to use a consistent quantitatively-based approach to analyzing those charts.