Below you see 6 boxes on the left, and 6 boxes on the right:
The contents of the boxes to the left have something in common.
The contents of the boxes to the right also have something in common, which is opposite to the ones on the left.
What’s the difference between the two sets of contents?
The above problem is quite easy to solve.
Here’s a slightly tougher one:
Are you able to figure it out?
Do not proceed until you are ready to see the answers.
1) Left: Contents are not colored. Right: Contents are colored.
2) Left: Contents are drawn using straight lines. Right: Contents are drawn using curves.
3) Left: Triangle is bigger than circle. Right: Circle is bigger than triangle.
What’s the significance of this?
These are called Bongard problems. They are different from regular problems in one very important way.
With a regular problem, you are given a set of rules and you have to figure out how to apply the rules to solve the problem. For example, in a game of chess you know how each piece can move, and whether each tile is occupied by a piece, or is empty. The challenge is then to win the game without breaking the established rules.
With a Bongard problem however, you have to figure out what the rule is.
Can you figure out the rule here?
How about this one:
(Answers to be found at the end of this post.)
How most traders get it wrong
Few people realize this, but the market is an ever-changing Bongard problem. Every time you look at a price chart, you have to figure out what the rule is.
Sometimes the rule is basic technical analysis. Sometimes it’s a strong economic driver. Sometimes it’s a combination of the two, and sometimes it’s something totally different.
Unfortunately, most traders get things the wrong way around. They first decide the rule they wish to follow (i.e. moving averages, MACD, RSI, etc), and then try to impose these rules upon the market.
As the saying goes: If all you have is a hammer, every problem looks like a nail.
1) Left: A circle is drawn through the center of the other circle. Right: None of the circles are drawn through the center of either circle.
2) Left: Dots are of equal horizontal distance from each other. Right: Dots are of equal vertical distance from each other.