All market participants have little myths that they cling to and it doesn’t matter whether your investing is based upon the narrative fallacies generated by fundamental investing/news or whether you take a more technical approach. All humans are subject to inaccuracies in thinking – making mental mistakes is universal. One that has always intrigued me and it does seem to plague those who believe in a more active form of trading is the lack of value they place in taking a step back and jut considering the bigger picture. In part I think this arises because of an innate belief that trading requires a short term focus and by extension a certain immediacy. There is also the long held dualism that the more you trade the more you make and to facilitate this churn you need to trade very short term positions. However, my experience and the evidence does seem to back up the conclusion that this belief in needing to trade short term is false and is more a behaviour designed to obviate boredom rather than a tactic for trading success.
Consider the two charts below which caught my eye this week.
Both charts are weekly and they show the value of just taking a step back and taking a deep breath. For example, if you look at the chart of the FTSE 100 you can see that the market began to stall in 2012 and has constantly been butting up against resistance at around 6900. This fact conveys a lot of information to traders of all time frames, for equity traders who opt for a longer view it tells you that at present the FTSE is stalled and there will be better opportunities elsewhere. For shorter term index traders it tells you that there does seem to be a sentiment based cap on the upside at present. Once again look elsewhere.
All markets benefit from simply looking at the what the long term chart is and it is the long term chart that adds much needed perspective to whatever move you may be considering.