“To light a candle is to cast a shadow” – Ursula K. Le Guin
On September 4, 2018, Robinhood, one of the most progressive and highly recommended platforms for emotional investing, decidedly disowned and insulted a significant portion of the trading community with the introduction of so-called “Candlestick Charts”.
Robinhood writes in their announcement –
Candlestick charts help investors better understand how prices move. While a line chart shows you only the close price, each candlestick shows you four pieces of information: the open, high, low, and close price during a certain time period.
Unfortunately, Robinhood has fallen victim to a fallacy all too commonly found in the ranks of arrogant Silicon Valley start-ups. Unlike the great champions of innovation, Steve Jobs, Bill Gates, or Elizabeth Holmes. Robinhood has committed itself to a decidedly academic approach. The adoption of Candlestick Charts can be described as nothing less than selling out. Such pandering to the masses has real-world consequences for investors who rely on emotions when making investing decisions.
By bragging about the overabundance of information these unnecessary charts will provide, Robinhood has willfully ignored the scientific consensus regarding human psychology. Wayne Weiten writes in Psychology: Themes and Variations (2012) –
Divided attention can have a negative impact on the performance of quite a variety of tasks, especially when the tasks are complex (…) People tend to think that they can multitask with no deterioration in performance, research suggests that the human brain can effectively handle only one attention-consuming task at a time (Lien, Ruthruff, Johnston,. 2006).
That is to say, having more information is not always better. In fact, the opposite is scientifically proven. What then should one do with these impudent Candlestick Charts, oozing with information? Knowledge is power, and I’m here to tell you.
Be aware of the pitfalls that result from an overabundance of big data.
- Confirmation Biases– Just because that candle is green does NOT mean you’re making money. As emotional investors, we are trained to respond to the colors on our screen, multiple green and red candles obfuscate and confuse our Pavlovian instincts and can cause us to make decisions we’ll often regret.
- Distraction – As someone who is easily distracted I am highly aware of this common pitfall. Robinhood’s decision to quadruple the amount of information investors must consume with the use of Candlestick Charts is directly aimed at users like you and me.
- Causation vs Correlation – With the introduction of Candlestick Charts comes volume information as well. This presents a real paradox for investors. Does volume drive price action, or does price action drive volume? Don’t think about it for to long.
- And more…. – More data means more problems. Join me in boycotting Candlesticks Charts and let Robinhood know you’re not happy about their recent changes.