If you’re on Twitter, there are a ton of theories floating around as to why the market sustained an uptrend last week. You’ll hear reasoning such as quarterly performance bonuses, EOM trickery, smart money bull traps, etc.
These opinions may elicit an emotional response to the reader. And when the reader pulls up a price chart, the first thing the brain will attempt to do is try to identify what it has previously known to be true -i.e. since price “feels” extended, look for max potential to the downside.
“That’s a hanging man candlestick!”.
“Banking crisis!”
Undoubtedly, the eyes will go to the nearest long term low. The brain will then begin to look for confirmation as to why price will retreat to that low. The brain will start to remember all the previous times that it had “predicted” price direction correctly and will try to reaffirm that. All the while, completely forgetting the numerous times price prediction was incorrect. This is called Survivorship Bias and can destroy your portfolio.
If you get anything from me at all, let it be this: