Phil Davis’ Mircowave Oven Theory of Behavior
by phil - June 14th, 2010 5:28 pm
I mentioned my Microwave Oven Theory this morning and I didn't realize it was hard to find so here it is again:
Last Thursday, I mentioned that Jim Rogers said:
I am as confused as anybody else (about the level of bearishness on the Euro). Usually that indicates a rally… Once a technical rally starts, who knows where it can go from that.
Don't you wish other people would be that honest with us? It's very hard for people who give opinions for a living to stand in front of an audience and say: "I don't know." Somehow they seem to feel that they HAVE to know and, what's worse, once they force themselves to make a decision, they somehow feel obligated to defend it, even if new evidence comes out to the contrary.
This is exactly what's wrong with financial reporters and analysts, especially the clowns on TV (as well as pretty much anyone who makes a living giving you their opinion). My Members are familiar with something I'm going to share with you now. It is a Nobel Prize-worthy theory that I feel helps make me a better trader and I thought this would be a good time to share it with you:
People love to make random decisions and stick to them like they were directly given it as a commandment!
How does this relate to microwaves? Well, aside from the fact that our brains are constantly being fried by the things every day (ever drive on the highway and see one of those dishes aimed right at you? Do you know birds die if they fly too close to them?), this is what I observe:
You put something in the microwave, say pizza, and you put in a time, say 3:33 (or maybe you are a whole number person and do 3 or 4 minutes). Now, unless you are a chain store pizza buyer your pizza slice is probably not always the same size or maybe it has different toppings etc., but you probably put in the same number every time.
Theory number 1: People tend to repeat behavior, especially if it was successful in the past.
So the light goes on and the little thing spins…
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Basic Technical Patterns: The Foundation of Common Pattern Identification
by Chart School - April 1st, 2010 2:23 pm
Pharmboy’s latest chapter in his TA eBook – Chapter 7! - Ilene
Links for previous chapters:
1. Understanding Market Cycles: The Art of Market Timing (Chp. 1),
2. Dow’s Theory of Markets (Chp. 2),
3 & 4. Fundamental vs. Technical Analysis and Types of Technical Trading (Chps. 3 & 4).
5. Stock Charting Basics: How to Read & Understand Stock Charts (Chp. 5 here.)
6. Using Moving Averages for Long and Short Trades (Chp. 6)
Basic Technical Patterns: The Foundation of Common Pattern Identification
Courtesy of Pharmboy of Phil’s Stock World
In Figure 1 below, typical up trends and down trends are shown. These zigzag patterns are seen all the time, but why do they form? Let’s say someone bought a stock at a certain point. If that stock went up, but pulled back to the original purchase price, they will often think that it’s an opportunity to buy more at their original price, thus adding to their position. This is also the same for shorts when they are able to short a stock at the same price they shorted previously. Then why do peaks form? People sell (or cover) to take profits. Obviously, any increase in selling will pull the stock back. Those who bought at a lower level may start buying again. This repeats and repeats until 1) there is no more stock left for people to buy, or 2) there is too much supply and not enough buyers. On a larger scale, this is how bull and bear markets begin and end.
Figure 1 Typical up and down trends.
The following basic chart…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW.