Every now and again a client will say to me “I just knew the market was going to X.” Often, but not always, ‘X’ stands for “take a dive”, “tank”, “take a dump” or take a some other four-letter verb (the family nature of the blog precludes me from going further) denoting a decline. Of course the reality of the market — the uncountable factors, and players, that determine the next market move — make such knowings utterly impossible.
Should you ever find yourself with that tingling (I know what’s about to happen) feeling, remember the following by Mark Douglas in his insightful book Trading in the Zone:
When you’re convincing yourself that you’re right, what you’re saying to yourself is, “I know who’s in this market and who’s about to come into this market. I know what they believe about what is high or what is low. Furthermore, I know each individual’s capacity to act on those beliefs (the degree of clarity or relative lack of inner conflict), and with this knowledge, I am able to determine how the actions of each of these individuals will affect price movement in its collective form a second, a minute, an hour, a day, or a week from now.” Looking at the process of convincing yourself that you’re right from this perspective, it seems a bit absurd, doesn’t it?