I would like to continue my previous article by adding something more to it.
Unrealistic expectations on chart analysis:
Subjective traders, no matter what strategy they practice, they believe in their own efficiency in visual analysis of market charts. Price charts are trusted to be valid in detecting potential patterns in them; this is what the pioneers of technical analysis discovered and that’s what most of us use today. The human mind has the capacity and need to find order in what it experiences. We have the tendency to accept in an intuitive, non-scientific way impressions, but unfortunately in many cases what it seems at first sight may not be a valid thing.
Our brain is dependent on seeing shapes even if they are not real. Dr. John Elder, an authority in predictive modeling, calls this phenomena the “bunnies in the cloud” effect. Trends and patterns on market charts that appear real to the human eye may be just illusions created by the mind’s tendency to find order. Of course clear patterns and trends can be identified on charts and there are studies that shows that there are patterns which are valid predictive. However, only visual inspection of charts is not enough to g…