Did you ever think about how traders predict the prices or why they can read the charts?
Most of them read a lot of books and have a lot of experience in what they do.
But is it just the experience?
In the chart system, there are different points that will change a chart. I called them as follows:
The training part, this is the part how people react to a market because they learned it to react like this.
The News part, people react to the news. Mostly the first reaction if the news is good they buy and if the news is bad they sell. For example, if JP Morgan says Bitcoin is a Fraud people see this as a bad news and they sell the bitcoins.
The Hype part, people just follow a hype. Here a picture how a standard hype looks like.
A lot just follow this hype and got caught with enthusiast and greed and mostly they will lose a lot of money.
Same when the top got reached some fear is coming and everyone is selling. We saw this phenomenon by bitcoin with the fear that China will ban Bitcoin from the Country.
Picture Source
For sure all these three points are in an interplay. And we just have a look at the mainstreamm reactions to the market.
Now let's have a better look at the first point the training part.
We see this triangle patterns a lot in the trader charts. And with it, they try to predict the price. And a lot of times they are right.
So how can that even be possible?
It's really simple. If every trader learns to react specifically in a situation they will all react as the same.
For example, if we all learn to brush our teeths before we go to bed. After a time the hole society will brush the teeths befor they go to bed because we learned it like this.
So we have these different situations on the market and I trader just has to learn how will the most of the people react and then react how he can have a profit out of the situation.
So the trader is actually not learning to read the chart he is actually learning how the people will react.
And this is pure Psychology.
So if you wanna start to trade just learn the rules the most traders follow and this will be a really good start for you.
Another way would be to learn how the big players react. If you understand the big players, you will know how they will react in the future. Because they have a big impact on the system.
I hope you Like the article and I gave you a new mindset for the trading market.
Stay happy
your @goodmindset
Good article, one can see that you've put a lot of work in it! I cannot understand that it didn't get more views.
Well anyway, your article is really interesting; I had similar thoughts recently. There is this guy, a french sociologist, Michel Callon, who basically says that economic theory, in the beginning, didn't depict how the economy really works. But over time, economic reality started to adapt to economic theory; in sociologists slang, "economic theory is performative" (https://halshs.archives-ouvertes.fr/halshs-00091596/document).
I think technical analysis is a very good example of this. You basically say the same thing as Callon, but just in a much more understandable way, when you say that "the trader is actually not learning to read the chart he is actually learning how the people will react." It's this. Traders internalize technical analysis and they know that everyone else will react according to the theories of technical analysis. Therefore technical analysis works.
But It's even nice if some people like to read it.
Cool that you had similar thoughts and that you put your thoughts in the comment.
I will definitely check this sociologist Michel Callon out! Hopefully, it's not in French. :)Thank you @pascalwitzig that you appreciate the work. I think that's always the problem with the small fishes, ;)
Hey looks like as if you've attracted a whale! Or where did that 11$ come from?! :D It's english, but don't mind reading the whole thing; basically you can say the whole thing in a sentence and the rest is just social science blabla ;)
Check today this dude out and his work! Really interesting stuff he researched!
I didn't read all of it just some peace but really nice! How did you found him?
I like this part:
"Everyone ends up aligning themselves to the model and everyone's expectations are fulfilled by everyone else's behaviors."
the Self-Fulfilling Prophecies. Maybe something I will write about in the future blogs. We will see.
Yes indeed, that field of research is really interesting; also because it challenges many hypothesis of the neoclassical economic theory. I've learned about Michel Callon in a course in university about economic sociology.
Would be interesting if you would pick up the topic of self-fulfilling prophecies in a separate post!
Hahah ok will check it out tomorrow.
Yeah, looks like good karma gave me an upvote! :)
I like the article. Thank you.
Cool to hear, thank you!
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