Share this Article & Support our Mission Alpha for Impact
This is some text inside of a div block.
This is some text inside of a div block.
This is some text inside of a div block.

The pattern recognition machine.

Post by 
Text Link
As human beings, we search - consciously or unconsciously - for patterns with which we can understand the world and make better decisions. But we cannot rely on the fact that the patterns we think we recognize are real.

It is highly probable that each of us has observed a pattern that he or she was convinced was real or had a deeper meaning. If only because it seems so improbable to us that it simply "cannot be" coincidence:

the call of the parents or siblings exactly at the moment they were being thought of (so-called "thought transfer");
the old school friend, whom one meets after many years completely unexpectedly on vacation on the other side of the world;
the DAX, which hits the meticulously calculated Fibonacci retracement exactly on the dot and then immediately rotates in the opposite direction.

Patterns everywhere

As human beings we have a brain that is virtually tuned to recognize patterns. The reason for this is that this ability was a great survival advantage in our evolution. That is why we are still looking - consciously or unconsciously - for patterns to help us understand the world and make better decisions.

The problem is that not always when we "recognize" a pattern, is it actually real. The process in our brain is highly subjective because we do not consider the totality of all cases - because our perception is limited to what we are aware of. Exactly this one situation in which we notice the pattern is only one of many alternative scenarios that we are often not aware of at all.

The 7/11 Baby

Gary Smith describes in one of his articles an example that illustrates the problems of pattern recognition ("We See the Pattern! - But Is It Real?"). [1]

7-Eleven is one of the best known US retail chains. Due to the spelling 7/11, July 11 is a special day every year when the company distributes free drinks ("Slurpees"). In 2019, CNN reported on a very special event in a Missouri family on this day: "This baby was born at 7:11 in the evening on 7-Eleven day and weighed 7 pounds and 11 ounces". 2] In the following comments around this story, there was philosophizing about how extremely unlikely this event was.

7/11 baby
Figure 1) The 7-Eleven Baby with the happy parents
Source: CNN (2019), This baby was born on 7-Eleven Day at 7:11 pm, weighing 7 pounds and 11 ounces

But Gary Smith analyses quite rationally:

On average, almost 12,000 babies are born in the USA on July 11, which corresponds to about eight babies per minute
since one differentiates besides in the morning (a.m.) and in the afternoon (p.m.), there are even 16 babies in each minute of the double 12-hour rhythm; it is therefore nothing special at all that a baby was born on 11 July at 7:11.
the story got special attention because of the additional "matching" weight of 7 pounds and 11 ounces; however, this is a very common birth weight.

Skeptics could also argue that the weight could have been "helped" up or down by a gram or two, possibly to get nationwide attention (and maybe also gifts from 7-Eleven, which in retrospect actually existed). Since the parents took the initiative and contacted the media and not the other way around, this version can by no means be dismissed.

Many events to which we attribute a special significance turn out to be ordinary, random events on closer examination.

It is an entertaining story, no question. But it is not a pattern that has any meaning beyond pure coincidence. This very conclusion may be true for many things to which we attribute a special meaning - but which on closer examination turn out to be ordinary, random events.

Conclusion

Our brain is a real pattern recognition machine. But we cannot always rely on the fact that the patterns we think we recognize are real. Therefore, especially when it comes to trading strategies on the markets, clear, objective tests are required that objectively confirm such patterns - or, as in most cases, refute them.

[1] Smith, G. N. (2019), We See the Pattern! - But Is It Real?, https://mindmatters.ai, accessed on 28.10.2020
[2] CNN (2019), This baby was born on 7-Eleven Day at 7:11 pm, weighing 7 pounds and 11 ounces, https://edition.cnn.com, accessed on 28.10.2020

Would you like to use this article - in full or in part - for your purposes? Then please consider the following Creative Commons-Lizenz.