SBB 062 : Stories

The world is full of stories and as humans we love them. No, we CRAVE them.

Everyone can relate. If you watch a film you know whether it’s a good story or not. We like a good story and we don’t like bad stories. And we know how to tell the difference. It is like a sixth sense. We know why a story is bad, but rarely can we put our finger on why exactly. We just…..know. Just like how we can tell if someone might be lying to us. You don’t know why, you just sense it. Its because that person is giving off signals that you haven’t been trained to identify. Yet your brain sees it and warns you that something isn’t right. Your brain is wired this way.

We are told stories every day. It has been crucial to our evolution as humans. Story allows us to imagine what might happen in the future. No other species can do this. Stories make us human.

Recent breakthroughs in neuro-science reveal that our brain is hardwired to respond to story. The pleasure we derive from a tale well told is natures way of making us pay attention to it.

In other words, our brains are hardwired to seek out story to teach us the way of the world. People prefer fiction to non-fiction, they would rather read a historical novel than a historical text book. They would rather watch a movie than a documentary. Not all people, but most.

This is because our brain is designed to seek out stories.

Fundamentals in trading are exactly that…..stories.

Fundamental analysis relies on economics, government policy, news, price-earnings ratios and balance sheet analysis just to name a few.

The world of trading is full of people wanting to know “why”. Why is the price of oil rising? Why is gold flat right now? What will happen to the German DAX market in 2017 and why?

People want to know why because they crave story and it makes them feel safer. It calms and soothes in a world of chaos. It allows people to make some sense of it all. To put a story behind an event makes people feel better.

This is why hundreds of religions have been created throughout history. Its story, and it’s created to make you feel better.

Why are fundamentals so popular? Because we are hardwired to crave them. Humans will always seek out stories. They will always want to know why. It makes them feel better. Regardless of whether there is any factual truth behind it or not.

Traders are accepting the words of analysts on Bloomberg as gospel. There is a cry of “ahh” around the room when a so called expert explains why those who were long just lost all their money. It makes people feel better.

Do you think that Bloomberg, blogs, analysts, advisory services, stock pickers, alert services, brokers and pretty much everyone else in the industry knows this? Of course they do. This is why they feed it to you.

There is a reason why great traders like Jesse Livermore told us of how he would lock himself in his secret New York office and trade with just him and the ticker tape. No distractions or news or contact with other people. There’s a reason Nick Darvas made £2 million in the 1930’s whilst completely cut off from wall street, using telegrams to read the prices, and then lost it all when he moved to Wall Street. Only to make money again after going back to seclusion. There’s a reason why the Turtles in the 1980’s were heavily trained not to watch the news or read advisory services.

Michael Covel says in his book Trend Commandments “You can mix fundamental analysis with trend following. You can mix it with astrology, four-leaf clovers, chicken bones, lucky crickets and aunt may’s arthritis cure. But why would you? Except to give the appearance that there’s a secret sauce to trading”.

Contacting Chris
Twitter: @chrischilliuk
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