This Week: Do You Make Up Market Narratives?
We know the media pundits do it, but do you too sometimes make up false market narratives? And is it impacting your trades?

As pondered in this week’s WTWA, why has the market been so quiet? Specifically, after an ugly fourth quarter, followed by a powerful first quarter, it seems the market has been almost too quiet lately.

And perhaps in a bit of recency bias, it also seems many traders are expecting another bout of large volatile market moves. And in the absence of these big moves, the punditry are creating stories to try to stir up some drama (nothing new there). But are you too trying to create false market narratives about why the market has been so eerily calm? Have you left behind your data-driven analysis in favor of tea leaves and crystal balls just to fill the emotional void created by relatively recent volatility episodes in Q4 and Q1?

Trading psychologist Dr. Brett Steenbarger offers some insight into what may actually be happening here with an analogy in his recent Forbes article. Specifically, he follows the story of a playful cat that goes from destructive, to a perfect model cat, and then to a low energy lethargic kitty. In pondering why the cat goes from “good” to “bad,” it turns out it’s the same cat all along, but his environment has changed.

Could something similar be happening with the market? Because of the lack of energy and volatility, are you making up false narratives or diagnosis? And have you gone so far as to allow your personal psychological void to affect your trades rather than relying on actual hard data? According to Dr. Brett:

“In short, the cat’s “personality” was very much a function of his fit with the environment and his overall level of health and energy. Aries’ identity is very much contingent upon his setting and his physical state.”