Why you see shapes in clouds: Clustering Effect

Ever played that game with your friends? The one where you find a face in the clouds… you may find it, but your friend can’t see it at all…. Or you both see the face and WOW that’s amazing. You suddenly have a talent for observation.

With the reams and reams of data flowing from the financial markets it is with no doubt you can find a pattern or two as well. I guess this is what platform providers take advantage of. Example: MT4 has its meta editor and MQL4 programming ability with a crude back testing facility incorporated in it. We also have access to millions of standard and custom indicators.

I had a friend come to me and was adamant that he found the holy grail with his special mix of indicators and recipe for interpreting them. Mind you, he also spent a year of his time and $50KEUR programming in discovery and testing only to find it does not work. He is a victim of clustering effect. Finding what he wants in a sea of indicators and data that really was not there.

Clustering effect can lead to a lot of time being wasted.