A trader whom I highly regard sent an email today with an insightful quotation. It comes from the renowned mathematician Benoît Mandelbrot:
Pictures can deceive as well as instruct. The brain highlights what it imagines as patterns; it disregards contradictory information. Human nature yearns to see order and hierarchy in the world. It will invent it where it cannot find it.
This is a quote that I had heard years ago, but today when I read it again (thanks Mark!) it made me think longer about our own willingness, not only as traders but also as human beings, to seek out confirmation of our own opinions, and repel opinions/charts/information that does not positively correlate with our own world view.
As traders, we often invent order where it does not exist. Often I will see a trader point to a chart from an economic news report and say something like, "See what it did? This is what it always does," when in reality it was just a bunch of chaos resulting from the whack-out, crackhead trading that goes on immediately after economic news. I have been guilty on many occasions in my early trading career of attempting to find order and patterns where they did not exist, or to find "order" in a very small sample set and then apply it universally. To put it another way, I would see one example of currency movement and assume that it worked most of the time, rather than take the time to study movements that happened most of the time and then apply it to current market conditions.
Thanks again to Mark for the quote. And here's an interesting Wikipedia entry about Mr. Mandelbrot. If you click here you can skip to the interesting part about fractals and "regular roughness."
