The Mass Perception Trap
The Mass Perception Trap
At the core of any significant economic, political, scientific, social, medical, psychological or cultural theory lies a quest to understand and quantify the forces of change, action or energy. The theories that attempt to quantify "force" that have stood the test of time date back centuries and are extremely simple. In 1686, noted physicist Isaac Newton suggested, in his laws of motion, that an object will remain in motion until it is met with an equal or greater force. Noted economist Adam Smith suggested hundreds of years ago that when supply exceeds demand at a price level in a given market, price will decline. Smith and Newton didn't create or invent the laws and principles for which they are famous. Supply, demand, motion and the relationships therein existed long before Smith and Newton, long before humans walked the earth for that matter. What these two individuals did, however, is look mass conventional "perception" in the face and challenge it with a reality that had been there all along. They were able to discover what no one else had because of a belief system that allowed them to open doors others never knew existed. If you notice, Newton and Smith didn't figure out one specific issue. They had a belief system that allowed them to rather easily apply the core principles of their knowledge to a host of issues, producing answers the rest of the world still considers "ingenious" centuries later.
Mathematician John Nash's Nobel Prize winning idea became famous for most people in the movie, "A Beautiful Mind." For those of us who follow the coveted Nobel, he was famous way before the movie. He directly challenged a theory set forth centuries ago by Adam Smith. Smith suggested that the best outcome is derived when everyone in a group does what is best for themselves. On the surface, that makes sense but Nash argued through simple logic and mathematics that the best outcome actually comes when everyone in a group does what is best for themselves and the group. In the years that followed his breakthrough at Princeton, the Nash theory has been responsible for major global peace treaty negotiations, strategic corporate pricing models and much more. While John Nash is a brilliant mind, his simple theory, like Newton's and Smith's, had been a part of life as long as man has walked the earth, if not longer. For example, let's take a look at how dolphins (one of my favorite animals who I had the pleasure of swimming with at Atlantis recently) feed and behave in a group. Have you ever wondered why dolphins jump out of the water? Dolphins jump out of the water because they want to see where birds are feeding on a school of fish. When the dolphin's spot the flock of birds feeding, they race over to that area as fast as they can to eat. What is most interesting is that the first dolphins to arrive to the school of fish never eat right away. While the first few hungry dolphins can easily swim right into the school of fish and have their meal, they never do. Instead, they begin swimming around the school of fish to create a tight ball of fish called a "bait ball." As the rest of the dolphins arrive on the scene, they all swim around the bait ball to keep it nice and tight so no fish can escape. Then, one by one, they take turns swimming through the bait ball and rather easily eat as many fish as they like. What the dolphins have been doing for around 10 million years is exactly what John Nash suggested not all that long ago; in a group, dolphins do what is best for themselves and the group. As with the Newton and Smith theories, Nash simply exposed a simple reality that had been right in front of us all along
Throughout history, there are countless examples of individuals who looked mass conventional perception in the face and challenged it. Long ago, challenging conventional thought often meant a death sentence. Galileo was almost burned at the stake for suggesting that the earth was not the center of the universe. Certain minds throughout history such as Einstein, Newton, Galileo, Smith and others were made famous because of their discoveries. What I have always focused on is not the results of their work, but the mental process and path that allowed them to realize what most other people have never even considered.
Are Newton's three laws of motion really any different than Adam Smith's laws of supply and demand? In my quest for truth in trading and markets, I have realized that whether you are talking about Newton's laws of motion, Smith's theories of supply and demand or Maxwell's laws of electromagnetic force, the basic governing dynamics of these laws and principles are different manifestations of the EXACT SAME THING. What I have done is apply this simple and straight-forward truth to financial markets. The result was a profound reality that opened up a door of endless low risk, high reward and high probability opportunity in the trading markets. And by the way, this reality had been right in front of us all along. What I write about in articles, talk about at trading events and apply during our live trading sessions at Online Trading Academy with our students is exactly the same underlying principle as Smith and Newton. In fact, I am really just saying the same thing Smith said a few hundred years ago when it comes to price movement in markets.
If the answers to the most basic questions in life are so simple and right in front of us, why is it that most people never see them, or consider them for that matter? Before we explore that question, let's not forget how people think. Instead of focusing on our actions, it's time to notice where those actions come from. Moving backward, one step at a time, actions stem from behavioral patterns and behavioral patterns stem from beliefs. So, it's at the level of beliefs that decisions are made, and moreover, where your ability to differentiate reality from illusion lies. It's time to start considering where your beliefs about what works and what doesn't come from.
The reality of attaining consistent profits in trading begins with understanding that how we make money buying and selling anything is exactly how we make money in the trading markets. This is the basic premise of all my articles on trading and investing.
Once this becomes ingrained in your belief system, proper actions in the markets will
follow. When people dive into the Online Trading Academy way of thinking money and markets, they quickly realize that we are preaching and practicing the opposite belief systems of just about every trading book that has ever been written. The buying and selling actions we are teaching people to take in markets flies in the face of what is taught in school, written about in the trading books and accepted in mainstream thinking for the past few hundred years when it comes to the trading and investing markets. We don't do this to simply be different. We do this because it's the truth. Our simple quest is the search for truth. To obtain irrefutable answers, one must look truth straight in the face, void of any illusion. The presence of even the smallest amount of illusion in the quest for truth ensures truth will never be found. What the masses around the world do when putting their hard-earned money at risk in the market when buying and selling in markets is the opposite action as when they are buying and selling just about anything else in their life. For example, let's say you walk into your favorite store to buy avocados because you love guacamole so much. As soon as you enter the store, there is a sign that reads, "Avocados are half price today only and there are 10 left located in the back of the store." What are you going to do? You are going to run and buy all ten, of course. Even if you don't eat all of them or want ten avocados, you will still want to buy them and give some away (who doesn't love a good guacamole?). However, that same person faced with the opportunity to buy a stock when all the news is bad and the price drops 50% right into a demand level is almost never going to want to buy the stock. Instead, most people would sell. After all, the news is bad, the price of the stock is in a downtrend, all the experts are telling you how bad it is, and so on. Therein lies the big trap... People think how you make money buying and selling anything is somehow different from how you profit when buying and selling in the trading and investing markets. There is absolutely NO difference! We use the rule-based concepts of supply and demand to pin point where the turning points are in advance in markets. This is how we achieve low risk, high reward and high probability entries into markets. For those who want more detailed information on that, please review one of my three years of detailed articles that illustrate and explain the whole supply and demand strategy in trading and investing.
Again, the answers to the most basic questions in life are so simple and right in front of us; why is it then that most people never see them, or even consider them for that matter? All the answers we need are incredibly simple yet, the vast majority miss the whole game being played out because of the illusions presented to them by those who often have more to gain by obscuring reality. This is a sad truth about trading and investing so keep your eyes wide open and if something sounds too complicated, challenge the person complicating it with some simple logic. Acams Razor - it is a scientific principle that suggests the simplest answer is typically the right answer. Often, the obvious can stare you right in the face and you will never realize it. It's not the illusion that distorts reality that is the problem. The problem is that for most, the illusion is reality. Until 1745, it was well-known that the earth was flat. Why would anyone question what everyone believed to be true? You see, illusion teases reality... Don't let the shadow of illusion darken the reality of a governing dynamic that has been here all along which is this...
The movement of price in any and all markets is simply a function of an ongoing supply and demand equation. Low risk, high reward and high probability opportunity exists when this simple and straight-forward relationship is out-of-balance.
Whether we are talking about the price of the S&P, gym shoes, Crude Oil Futures, bananas, the Euro, a hair cut, whatever... How we arrive at price in these markets is the exact same underlying equation, not some fancy art of conventional chart patterns or complicated math in the form of pricing models that computers don't even understand. Adam Smith and Isaac Newton would have been great traders.
I truly hope this was helpful, have a very nice day - Sam Seiden
About Sam Seiden
Sam brings over 15 years experience of equities, forex, options and futures trading which began when he was on the floor of the Chicago Mercantile Exchange where he facilitated institutional orderflow.. He has traded equities, futures, interest rate markets, forex, options, and commodities for his personal interests for years and has educated hundreds of traders and investors through seminars and daily advisory services both domestically and internationally. Sam has been involved in the markets since 1991 both on and off the floor of the Chicago Mercantile Exchange. He has served as the Director of Technical Research for two trading firms and regularly contributes articles to industry publications. Sam is known for his trading, technical research, and educational guidance.
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