Ep 110 : Cause and Effect in the Stock Market (The Bigger Picture)
★ SUMMARY ★
I think it’s really important to discuss cause and effect, simply because it’s one of those things that allow you to look at the market in different ways, to see what’s going to happen in the future.
Investing in the stock market is all about seeing and projecting the future. If you can’t predict what’s going to happen in the future, you can’t really trade. And this all comes down to cause and effect.
As we look at the market, the biggest cause and effect comes down to volume and price. Volume is the cause, and price is the effect. However it is not a one on one relationship, there can be other factors that come into play as well.
Let’s look at some real life examples, for you to understand the cause and effect concept. For example, if you drive at 60 miles per hour in a 30mph zone, that’s the cause, and there might be multiple effects.
You might get to your job more quickly and save time, or you might hit a child, or the police might stop you and give you a ticket. So you need to look at the bigger picture and look at all the possible consequences (effects) of your actions (cause), in order to make intelligent decisions.
We humans, always think we are better than we really are. And this is a real problem when it comes to trading because this mentality usually leads you to make very bad decisions. You have to look at it and think “What is it that I’m doing wrong? What if I’m wrong? What if this goes against me?”
You need to look at all the possible effects, not only one. If you drive fast, yes, you might have the effect of getting faster to your destination, but don’t look only at that, you also have the effect of hitting someone, or having an accident. In the market, the same thing happens.
Always look at the numbers, at the probabilities and at cause and effect, look at the big picture and make projections based on that, and you’ll have a better chance to make the right decision. Don’t trade based on your emotions. However, you can go with statistics and this doesn’t mean you’re always going to be right.
In this episode, we’ll take a look at cause and effect in the stock market. I will also give you some insights about the election and Trump being president when it comes to cause and effect.
Posted at: http://tradersfly.com/2016/11/ep-110-cause-effect/
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