Past Performance Does Not Guarantee Future Results: A Reflection on Human Nature and Trading Strategies

It’s both intriguing and somewhat disheartening to observe how trading concepts often mirror human behavior. Here’s how:

Follow the Trend

In the investment world, the saying “past performance does not guarantee future results” is well-known. Despite this warning, many successful trend followers have found that stocks moving up generally continue to do so, and vice versa.

Interestingly, this concept applies to humans as well. Those who are happy and kind often continue in the same manner or even improve, while those who are miserable tend to spiral downward.

Mean Reversion

Mean reversion is a trading strategy wherein a stock experiencing a sudden increase or decrease in price will, over the subsequent days, revert to its old price and continue its previous trend.

People show a similar pattern. Whether making significant positive changes like adopting a healthy diet or negative ones such as becoming mean during tough times, they tend to revert to their original selves over time.

Breakouts

On a more uplifting note, we also see individuals successfully turning their lives around. This resembles the trading concept of breakouts, where a substantial jump in stock price signifies the start of a new trend. While this strategy has low success rates, the wins, when they do happen, are substantial. Traders like Quallamaggie have utilized this approach with success.

In human terms, breakouts symbolize those who make monumental changes and stick with them. Although success is rare, those who achieve it attain remarkable transformation.