A belief in trend reversal requires access to cognitive resources

Tyszka, Tadeusz; Markiewicz, Łukasz; Kubińska, Elżbieta; Gawryluk, Katarzyna; Zielonka, Piotr

doi:10.1080/20445911.2016.1245195

Cited by 6 publications

(7 citation statements)

References 27 publications

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“…Previous studies have shown that both individual differences and perception of the nature of the phenomenon that generates the outcome (i.e. whether it depends on human skills or randomness) influence the process of trend identification (Tyszka et al 2017). While one would assume that higher expertise should lead to better forecasts, there is the empirical evidence to the contrary, e.g.…”

Section: Introductionmentioning

confidence: 59%

On the Need for Cognitive Closure and Judgmental Trend Forecasting

Czupryna

Kubińska

Markiewicz

2017

AOC

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The paper considers the following hypothesis: humans' need for cognitive closure reduces the usage of historical observations in judgmental forecasts only in horizontal trends. To test this hypothesis, three studies were conducted. In each, participants forecasted the next, unknown observation using the previous time series. The analysis concentrated on trend analysis and how the trends in historical data are used as the basis for forecasting depending on psychological traits, in particular cognitive closure.

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Section: Introductionmentioning

confidence: 59%

On the Need for Cognitive Closure and Judgmental Trend Forecasting

Czupryna

Kubińska

Markiewicz

2017

AOC

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“…Such a rise in confidence might also be caused by another phenomenon: human difficulties in differentiating between random and non-random (deterministic) sequences (Lopes & Oden, 1987;Williams & Griffiths, 2013). DM's are inclined to identify sequences wherever possible (Tyszka, Markiewicz, Kubińska, Gawryluk, & Zielonka, 2017;Tyszka, Zielonka, Dacey, & Sawicki, 2008). Thus, Zielonka has proposed that TA momentum and contrarian signals are representations of common cognitive biases (Zielonka, 2002(Zielonka, , 2004Zielonka & Białaszek, 2020), and that TA's popularity arises from the pervasiveness of cognitive biases in individual (non-professional) investor's reasoning processes.…”

Section: Discussionmentioning

confidence: 99%

The role of need for structure in technical analysis and how identifying information in price movements raises traders’ confidence

Markiewicz¹,

Czupryna²,

Kubińska³

2020

Decyzje

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Technical analysis (TA) is a tool believed to support investor's investment decisions. Even if research has demonstrated that TA cannot be used to make systematic profits over a long time period, it could potentially bring psychological payoffs to its users in the form of enhancing their confidence. In an experimental study we show that: (1) chartists demonstrate overconfidence in TA usage, believing that they are better than they actually are in TA formation recognition, and that; (2) the act of naming an observed trend as a TA formation brings extra confidence to the chartist, regardless of whether this is a real TA sequence or a random sequence. Thus, both naming an existing TA formation as a TA formation and naming a random sequence as a TA formation result in greater confidence.Also, irrespective of the high popularity of TA among investors, there are marked individual differences in TA followers. In a questionnaire study, we demonstrate that declared positive attitudes toward TA correlate positively with

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“…As a result, the propensity to assume trend continuation is highly resistant to contrary evidence (Scheibehenne et al, 2011) and requires minimal cognitive resources to operate (Tyszka et al, 2017). Nevertheless, such a propensity may backfire in an artificial envi ronment, such as the stock exchange.…”

Section: Discussionmentioning

confidence: 99%

“…Laboratory experiments on the perception of randomness point to a belief in shortterm momentum (assuming positive autocorrelation) as a dominant cognitive strategy (Tyszka et al, 2008). Pre dicting the continuation of trends engages minimal cognitive resources, compared to attempts to detect trend reversal (Tyszka et al, 2017).…”

Section: Hypothesesmentioning

confidence: 99%

Don’t fight the tape! Technical Analysis Momentum and Contrarian Signals as Common Cognitive Biases

Zielonka¹,

Białaszek²,

Biedrzycki³

et al. 2020

CEMJ

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Purpose: Stock market participants use technical analysis to seek trends in stock price charts despite its doubtful efficiency. We tested whether technical analysis signals represent typical and common cognitive biases associated with the continuation or reversal of the trend. Methodology: We compared investors’ opinions about the predictive power of technical analysis signals grouped into five conditions: real technical analysis signals associated with trend continuation (real momentum signals) or trend reversal (real contrarian signals), fake momentum or fake contrarian signals, and fluctuation signals. Findings: Investors assigned larger predictive power to real and fake signals associated with trend continuation than to signals associated with trend reversal. Fake signals, which represented cognitive biases, elicited similar predictions about trend continuation or reversal to real technical analysis signals. Originality: Market players assess momentum signals to have greater predictive power than contrarian signals and neutral signals to have the least predictive power. These results are independent of whether technical analysis signals were well-known to investors or made up by experimenters. The hardwired propensity of our brains to detect patterns combined with the non-natural environment of the stock market creates the illusion of expertise that is not easy to dispel.

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A belief in trend reversal requires access to cognitive resources

Cited by 6 publications

References 27 publications

On the Need for Cognitive Closure and Judgmental Trend Forecasting

On the Need for Cognitive Closure and Judgmental Trend Forecasting

The role of need for structure in technical analysis and how identifying information in price movements raises traders’ confidence

Don’t fight the tape! Technical Analysis Momentum and Contrarian Signals as Common Cognitive Biases

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