The Psychology of Pattern Recognition in Trading
Human cognition is inherently wired to detect patterns, even in random noise—a survival mechanism honed by evolution. Traders and investors exemplify this tendency, often projecting meaning onto market movements where none may exist.
Michael Shermer's concept of "patternicity" explains our brain's propensity to create narratives from chaos. This cognitive bias leads market participants to interpret price fluctuations as actionable signals, despite potential absence of fundamental drivers.