Theory 1: The Market is The Matrix

Probably one of the most important things that people don’t stop to think about when trading is the market. Not so much what the market contains, but what moves it.

One of the most common mistakes I see people make when they start trading is that they sort themselves into schools of thought, like students at Hogwarts. You’ve got the school of Fundamentals and the school Technicals. For some reason, once traders settle down in their school of choice, they seemingly forget the other schools exist and more importantly, they forget that all schools are not equal and that while one curriculum may suit you well in one situation, it doesn’t mean that it’l prepare you for every situation.

But what determines the Hierarchy? The Matrix. You see, the market is a lot like the critically acclaimed films starring the beloved Keanu Reeves. Let me explain:

The Market is The Matrix

Right now at this very moment the market is moving. Stocks are going to work, having kids, eating linner… uh… dunch? Late lunch. Much like in the Matrix, the majority of stocks are currently on autopilot going about their normal day executing a routine defined by… ROBOTS DUN DUN DUNNNN.

Most of the trading now-a-days is performed by algorithms. The algorithms look for particular circumstances in the market and either buy or sell freely depending on which criteria are met. There are many of them trading all day long and even in the after hours. Earnings? Algos, Technicals? Algos, Dave Portnoy sex tape leak on Twitter? Disgrutled Ex… but also Agents… errr Algos. The main “motion of the ocean” is almost completely defined by algorithmic trading. Those stocks that nobody has ever heard of moving up and down throughout the day are simply a byproduct of The Matrix enacting it’s will upon the market as a whole.

Now, it’s easy to say, “Well obviously, if they’re the fucking Matrix itself, clearly Algos are the most important thing that move the market” and you’d be wrong, yeah, wrong, sorry. Because… MOTHERFUCKING NEO(ws)… neows, sorry, news exists.

In the movies, things move as they normally would… until Neo and his gang of non-binaries (if you laugh at that let me know because I’m really fucking proud of that joke) show up and wreak havoc on the status quo. Neo is capable of breaking through the rules established by the matrix without issue, which is exactly the role news plays in the market.

Make Technicals your “Thing” but remember that Fundamentals are King

So, when selecting your school, you should pick the school of Technicals because they are the language spoken by the robotic overlords running the market. They define the rules by which stocks trade… when they’re left alone. Technicals work because the system has made them work. Patterns emerged because a bunch of programs reacting to the same stimuli will undoubtedly start creating predictable reactions… because they’re just programs and they react in binary ways.

But, you should always be ready to cut class and join the school of Fundamentals whenever Neo enters the scene because the rules established by the Matrix no longer matter. Institutions aren’t going to not buy a stock with bullish news because it’s in a cup and handle, or because it’s near previous resistance. They’re the honey badger, they don’t give an absolute fuck, they’re buying shares and they’re buying (or selling) them now.

Bringing the Matrix analogy full circle, even the agents (Algos) stop obeying the rules when Neo (news) enters the scene. When bad earnings come out, Algos dump the stock despite what the technicals say. So why, if both Institutions AND Algos are prioritizing news, would you not do so? Stupid right? Yeah looks at bot traders. That is to say that you’ll only be a successful trader if you realize that you can’t go “all in” on one school, you have to broaden your understanding of which tools to use when and attempt to gain an understanding of what forces are defining the path that your chosen stock is on.

(Obviously for the sake of the analogy, News and Sentiment are bundled in Fundamentals, don’t @ me.)


I missed the non-binary joke prolly due to me being a simpleton. Good post overall Dad

Nice, was waiting for another one of these. :grinning_face_with_smiling_eyes:

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Love it, and loved the non-binaries got a decent chuckle out of me. Learned the hard way always be agile (both meanings) - and don’t wait for someone else to tell you what to do -

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Lol’d at the looks at bot traders. Great analogy overall.


I’ve never watched The Matrix…

edit: The Matrix


Good post, this has generally approach over the years. I have always thought that technicals work not because of robots but because they are statistics. For example Bollinger bands are just standard deviations. Vwap is just the mean and of course everything always regresses to the mean.

I remember being blown away studying statistics at university and discovering that it almost always works. Except when your data is bad. Now that you mention it, I guess that bad data is like Neo busting in.

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Great read, and non-binaries joke was funny

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Red pill or Blue pill?

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I laughed more at your comment after the non -binary joke than the joke itself, even though I got the joke. I don’t know if that makes you happy or sad.

Amazing writeup. Always love these types of stuff from you