Traders like to pretend they’re machines. That they stick to their trading rules and signals.
But, that’s not what I’ve observed in practice. Which might explain where so many traders go wrong. They don’t stick to their own rules. They’re human.
The rise of technologically driven trading – high frequency trading and algorithms – can be explained by the ability of machines and maths to exploit this human weakness. Because machines don’t make the same mistake.
But could humans exploit each other’s weaknesses too? Can traders make money out of other traders’ human flaws?
That’s just what Eoin Treacy does. Well, part of what he does.
Including psychology in his analysis is what makes Eoin different. He observes human flaws and devises ways to profit from them within the rest of his trading strategy.
How? He’s deliberately added human psychology to his three-step process for deciding whether or not to trade.
The three steps also feature elements that you’d expect to see from a trader. A range and a breakout, for example. But the nature of the equation – provided by Eoin’s differences – is unique as far as I know.
Here’s a section of the report which explains his Trading Triggers strategy, which he’s willing to teach you for free this Friday.
The next time you switch your television on, I want you to remember something:
You are being manipulated.
Apologies if that’s a shock to you. Perhaps it’s a surprise to you that every time an advert appears on the TV – or the radio, or YouTube, or in the newspaper for that matter – someone is trying to manipulate you.
But my guess is, you already knew that.
You know that there’s a subtle – sometimes not so subtle – set of psychological strings the advertising industry pulls every day to make you more likely to buy what they want.
Of course, the best way of advertising something successfully is to put great products in front of people who are interested in buying them, and at a price that’s compelling enough to make a sale. But that’s not how mainstream advertising really works in today’s world.
During every commercial break you’re bombarded with messages from every kind of business on the planet – many of which you probably have no use for – from shampoo to insurance to banking to gambling to clothing.
Why would advertisers spend so much time and money getting these messages in front of you when you’re unlikely or even unable to buy their product?
And perhaps more importantly, what on earth does this have to do with trading?!
The answer to my first question – why advertisers would do this – is simple. Aside from enriching themselves, constant bombardment of consumers with your message relies on a psychological phenomenon known as the “Mere Exposure Effect”.
Here’s a quick definition from psychology site ChangingMinds:
The more exposure we have to a stimulus, the more we will tend to like it. Familiarity breeds liking more than contempt. Things grow on us and we acquire tastes for things over time and repeated exposure.
This stimulus can be people, commercial products, places, etc. We can get to like most things, given time. We can even get to like unpleasant things, such as when prisoners miss prison.
When we make choices, the familiar is often chosen over the unfamiliar. ‘Better the devil you know’ as they say.
Or to put it another way, we’re more likely to pay attention to and be positive about things we are familiar with.
For instance, psychologists have found that repeated exposure to something – like a Chinese written character – leads to a more positive reaction over time.
From the point of view of an advertiser, the benefit of this is obvious.
But what about from a trader’s point of view?
That’s all I can reveal here. To find out more, you can sign up for the Trading Triggers tutorial.
But here’s a hint. Think of it in terms of bubbles. Ever heard of a bubble in something you haven’t heard of? Or did price spikes follow awareness of the asset that’s surging?
On Saturday I joined the Brothers (and Lady Brothers) of Charterhouse in London for lunch. For those of you who don’t know about Charterhouse, the offside rule and throw-in were invented in their Cloister.
I was a guest of one of the Brothers – distinguished elderly gentlemen, and as of recently ladies too, who live together in a community in the middle of London. They’re all characters out of a Miss Marple film, with stories and histories that earned them a very rate invitation to live there.
About five seconds after sitting down, I was asked about bitcoin.
This is literally the very last place in the world that cryptocurrencies should reach, but they have reached even there.
I was asked whether “one should own them” now that “they are all the rage”.
I’m on thin ice here. Calling a Brother a “marginal buyer” of bitcoin could be interpreted in all sorts of ways, none of which are good.
But I know what Eoin would say about this anecdotal evidence. By the time something is “all the rage” at Charterhouse, you shouldn’t be amongst the buyers.
It’s when the rage begins that you want to buy in.
If you agree, you’ll agree with at least one third of Eoin’s trading strategy. The other two thirds will be detailed on Friday, if you sign up to receive the videos that reveal all.
Until next time,
Editor, Southbank Investment Research