Prices Aren't Just Prices

As market devotees we track the current price practically 24/7. We all have a slightly different lens through which we see and interpret both the current price and its relative movement from the price five minutes, hours, days, weeks or months ago. Nevertheless, as traders of course know that price is king - the dictator of success or failure.

But do we ever stop to think about what a price really is? How it got there? 

To start with, every price traded hides at least two live human beings within it. It might seem self-evident but this fact mostly goes unnoticed yet research, academic and anecdotal, strongly suggests that active awareness of this fact improves one's ability to read markets. 

In fact a startling study soon to be published in a prestigous academic journal indicates that the area of the brain most active in successful reading of markets is a neural network for what is called "Theory of Mind" or the ability to understand the mind of another. To go one step further, an even newer study out of Europe shows that that same neural network works mostly with symbols of meaning - versus actually looking at the person. 

Could those two pieces of research be MORE relevant to trading?The first study even showed via brain scan evidence that the neural networks of probability were not even awake in those subjects who were most skilled at reading markets! 

So great, how what? As a sophisticated trader or investor all of your eggs are in the probability basket right? 

Try this - look at your market analysis lens (whatever charts, indicators you use) and try to find the pieces of it that seem more directly indicative of human perception. Volume and relative volume are a good place to start as that piece of data literally tells you how many people are involved in an asset at a price. If you know how many people are involved, that piece of information alone gives you more predictive power of how a stock or future might "act" at that price. 

Next, instead of trying to always know more than the next guy (a relic of the efficient markets hypothesis), assume they know exactly the same thing as you. Ask yourself, if that is the case, what does it mean about the price we are at? 

Both of these tricks can help any trader play this game better. After all, it is NOT an efficient market, it is really only a social market.