As human beings we all have an innate tendency to want to know the answers and solutions to challenges and questions which we encounter on a daily basis. In financial markets this natural tendency is pushed to an extreme as we simply CAN’T know the answers to many questions because they usually involve the future, which is unknown. Regardless of what we calculate or think the probabilities are, the fact is that ANYTHING can happen and astute market participants know this just like they know that one should not cross a busy street without looking both ways first.
I have been a big fan of Adam Grimes for a few years now. His book “The Art & Science of Technical Analysis: Market Structure, Price Action & Trading Strategies” is must read material for any serious market participant and his blog regularly offers timely and thoughtful market insights. Here is a brilliant excerpt from a post he wrote a few months ago:
“The reality is that the market is a messy and noisy place, and is often very random. Things happen for unknown and unknowable reasons and the future is almost (but not quite) completely unpredictable. Even though most people know this, most people would rather have a sense of precision, even if they know it’s a lie.”