This section examines the relationships between Behaviour, Perception, Probability and Software. It is said price reflects everything known in the market place. In today's remote electronic non-contact markets that is no longer true. Price is the combined perception of value, manifested by the collective behaviour of many participants. The "science of behaviour" is introduced in terms of previously defined patterns.
Perception as the visual mechanism via which market activity and behaviour are observed.
Software as the delivery mechanism via which market activity and behaviour is observed, and its influence on perception.
Probability as the assessment mechanism of decision making surrounding observation and perception.

As a long queue of traffic, held at a set of traffic lights, begins to move, a time gap exists between the movement of the first and last vehicles. And so it is with any queue, or collective. Equally, movement is not seen the same way by all participants. A primary objective is to ask why?; why is it so? why does it happen, and, why couldn't I SEE.

Introduction - the building blocks - concepts

source: B.F. Skinner's Science And Human Behaviour - 1999 by Alistair Knock

"To understand the term "science of human behaviour", one must first establish the definition of the two constituent parts of the phrase. Most would agree that "science" is based around a systematic and lawful study of the object in question, with the object being "human behaviour" - which one might argue relates to the mental function and reasoning of one person, and particularly the interaction between more than one humans. A science of human behaviour, thus, implies that mental function (the relevant science being psychology) and social interaction (or sociology) can be explained in terms of previously defined patterns or laws. In essence, this suggests that, given a set of conditions, A and B, and that as a result of these conditions, C occurs, it would be logical to presume that C will happen again and again whenever A and B exist. The argument made is that not only can a science of human behaviour explain previous events lawfully, but predict future events based on these laws".

What is the question
Wolfram van Eschenbach's Parzival
source:Parzival : Quest Of The Grail Knight as retold by Katherine Paterson

Parzival leaves the castle, to begin his quest ... to begin trading ??

"The gate was open and the drawbridge down. He galloped across, but when he got to the end of the drawbridge, someone yanked the cable so abruptly that Parzival was nearly thrown, horse and all, into the moat. Parzival turned back to see who had done this to him. There standing in the open gateway was the page who had pulled the cable, shaking his fist at Parzival. "May God damn the light that falls upon your path!" the boy cried. "You fool! You wretched fool! Why didn't you ask the question?.
What do you mean? .. Question? Parzival shouted back at the page.   What question?"

visual perception and the psychology of sight
why sight, visual perception, and memory, are important in Futures Trading.
Trading is a visual, and, memory intensive activity. Live trading screens deliver large volumes of information.
Trading depends on visual perception, therefore it is necessary to understand how it works.
The task is how to take it all on board, absorb it as it happens, and remember it.
Mistakes occur when we do not see what is happening.
They are important because mechanical systems do not work.

We learn how to see. We see things and that's how we know they are real.
The physiology of sight is about light and colour, our nerves and brain chemistry, and how light waves reach our brain and are interpreted. (From Peter K. Kaiser at

There are three phases to sight.
1. physical, optical process that receives light and colour impulses on to the retina at the back of the eye.
2. electro-chemical process responds to and transmits light and colour impulses from the retina to the brain.
3. neurological process where the brain receives and interprets those impulses.

Here we are concerned with phase 3 where sight is a psychological process, and therefore interpretive. A learned mental process that we call perception, i.e.. the ability to become aware of through the senses, to get knowledge of by the mind, to see, to understand. Mistakes are made when what is seen is interpreted incorrectly.

How is it possible for two people receiving the same light waves to interpret them differently? Two people may see the same things but interpret them quite differently. Plato (427-347 BC) Things are, for each person, the way "he" perceives them.

example of visual perception
Look at the number 4. The eye will see 3 straight intersecting black lines on a white background. The brain will perceive this image to be a numeric number with a decimal value of 4 because it has been taught, and thus learnt, what the image represents.
Look at the numbers 4 + 4. The eye will see 8 straight intersecting black lines on a white background. While the eye does not see the number 8 at all, the brain will understand (perceive) these images to represent the decimal value 8.

example of visual perception

Take the primary colours Red, Blue and Yellow.
BLUE on its own and we can only perceive the primary colour BLUE
Now mix blue with red or yellow
BLUE + RED and we can perceive the secondary colour PURPLE
BLUE + YELLOW and we can perceive the secondary colour GREEN
Unless the second ingredient colour is known, it is not possible to perceive what the resultant colour will be. We do know, it can only be, green or purple. That's Boolean logic for you.

Take the market price of an item and we only see the price of that item.
Now take the price of an item together with an earlier price of that same item at a lower level and we can perceive momentary price direction.
PRICE 1 + PRICE 2 = momentary DIRECTION
If price 2 is higher than price 1 traders know the perception that price 3 will be higher than price 2 is a defective perception.
Now take price and volume
Price1 + Volume1 + P2 + V2 ..... Pn + Vn = ON BALANCE VOLUME = MARKET ACTION
If On-Balance-Volume is rising, future prices can be perceived to be higher. If On-Balance-Volume is falling, future prices can be perceived to be lower. As in the perception of colour combinations, the components are necessary in order to know outcomes.

The principles of algebra are the same, ie substitution of knowns for unknowns. The brain perceives outcomes from known components. In order for a perception to be effective, sufficient components must be known to lead to that perception. It is for this reason that price charts based on price alone can lead to faulty judgments. See Wolff's explanation of partial recognition and perception of unseen components under pattern recognition.

pattern recognition test
Test of Observation, Pattern Recognition and Visual Perception. Have a go.

Look at the equation 5 + 5 + 5 = 550. Obviously it is not correct. Write it down on a piece of paper. To make it correct you may add one straight line to the equation. It can be vertical, horizontal or angled. You cannot place a slash through the equal sign to indicate inequality. The solution is visual not mathematical.

Longer than 15 minutes should cause reconsideration of charting as a solitary medium.

mechanical systems
What is a mechanical system?. May depend on your perspective. As software developers of real-time unattended automated robotic control systems we consider a mechanical system to be an unattended automated trading system. ie programmed trading.

Mechanical systems are used in the belief they eliminate "emotions" from the process. The fear of loss and failure are postponed. The quest becomes a search for a system that works. Most mechanical systems are based on price alone and are therefore defective - as explained in the preceding paragraph on visual perception. Such systems are symptomatic of a reluctance to see the components involved. Some years ago IBM attempted to computerize (mechanize) the human capability of "perception" using shapes and images. The software could identify clearly defined objects such as triangles, squares, cubes, figures, animals, ships, airplanes, buildings. It was unable to identify a flat shadow, cast on the ground, by a street light, of a person standing behind a tree. It could identify the tree, lamppost and street light. But not the shadow. Similarly a mechanical system can identify what has already happened. Unlikely it will tell what is about to happen. If IBM can't do it then probably nobody can. Not to say it can't be done. Just not yet. Computers can measure wind speed, but cannot if it is not local to the computer. American authority Linda Bradford Raschke states:- I've known hundreds of professional traders throughout my career. I don't want to disappoint you, but I know of only two who were able to make a living with a mechanical system.

NB: Triangles, squares, and cubes are objects. A shadow is a consequence of the location of the objects that create it. Move an object and the shadow changes. Price is not an object, rather a consequence of the participating objects that create it.

An astonishing number of "mechanical trading systems" are offered, on the net, with claims they "work". Not one claims to have solved the above "problem". None make any reference to it.

Footnote 1: A mechanical trading system, as used in this industry, is in reality a discretionary (attended) computerized (mechanized) decision table .. change the words a bit and a mechanical system becomes an attended probability engine, or simply a discretionary probability engine.

Footnote 2: Nobel Prize winning Scholes Black Formula, used as a mechanical system, caused the collapse of Long Term Capital Management - LTCM - a $4 billion disaster. Shaking the foundations of US markets.
Footnote 3: Knew one trader who spent 10 years (30,000 hours) developing mechanical systems for the SPI. Without success. That did not include trying any of the tens of thousands available out there on the web. Here are the choices. Is it better to (a) spend a lifetime searching for a "trainer" who can create another Muhammad Ali, or (b) spend the time training yourself. Adopt the former and fail, wastes 30,000 hours, and you are no wiser. Succeed on the 29000th hour and the quest begins. Adopt the latter and you will be a passable journeyman and 30,000 hours wiser. A marathon runner who searches for 10 years for the best trainer, or one who has done 30,000kms in training.

enhanced memory retention of what we see
Baroque music is used to accelerate learning, information processing, enhance memory retention.
Georgi Lozanov (MD, PhD) Bulgarian doctor, psychologist and neurologist "discovered" accelerated learning, memory retention, and memory enhancement.

There are a few important things to note:
Left and right brain
The left brain is short term memory and logic.
The right brain is long term memory and creativity.
Both the left and right brain are stimulated for both analytical and analogical thinking - that is, taking things apart and putting them back together again.
Transfer of information from left to right brain, short term to long term, occurs at night during sleep.
During this process of information transfer the brain impulses oscillate at 7.5 MHz.
Only when both hemispheres of the brain interact is the oscillation rate 7.5 MHz.
The brain operates naturally under its own steam at 7.5 MHz only during sleep.
Lozanov discovered that Baroque music at 60 beats per minute stimulates the brain to function at 7.5 MHz, during waking hours, with phenomenal results. You can read the literature yourself.
A simple experiment (from Lozanov)
Take a deck of 52 cards. Shuffle.
Lay 6 cards out face up on the table in a line.
Examine them for 30 seconds.
Gather them up.
Wait 30 seconds.
Now recall the face value and suit of each card in the order they were laid out.
If successful, increase the number of cards by 1 and repeat until you fail or struggle.
Wait for half an hour and repeat the exercise with baroque music playing.
You must state the card values, either verbally or silently, as you lay them out.
The results will surprise you!
The same exercise can be performed with phone numbers, and so on.

Tip : while trading - play baroque music. for channel capacity, observation, and memory enhancement.

psychology of colour
colour illusions and graphics illusions
extracts from on psychology of colour
with implications for chart graphics ... is it an illusion .. personal and cultural associations affect experience of color. Colors are seen as warm or cool mainly because of long-held (and often universal) associations. ... The illusions discussed below show that (some) color combinations can deceive the viewer, sometimes in ways that are advantageous. Color illusion can also cause unfortunate graphical effects ... Colors can affect each other in unexpected ways. Most colors, when placed next to their complements, produce vibrating, electric effects. Other colors, in the right combinations, seem quite different from the expected. ... The most striking color illusions are those where identical colors, when surrounded by different backgrounds, appear to be different from each other. In a related effect, different colors can appear to be the same color when surrounded by certain backgrounds. ... When a colored object is observed, the brain determines its color in the context of its surroundings ...

Additional information