Tony Plummer, Forecasting Financial Markets

The recognition that people do not always act rationally, and do not always make decisions independently of one another, necessitated a shift in the way I approached the markets. However, it was quite clear that there was no central body of literature to which I could turn. So, within a few weeks, I began my own process of collecting ideas and related information, and in 1989 ... the resulting understandings found expression in the first edition of this book. Since then, there has been an explosion of literature from authors such as Howard Bloom (The Lucifer Principle, 1995, and Global Brain, 2000) that substantially validates my conclusions about the pervasive influence of crowd psychology. Economic man, who makes decisions on the basis of 'rational expectations' is not only a travesty of a human being, but an impossible construct. For good and for ill, human beings are literally programmed to coexist, cooperate and correlate with one another. Such relationships validate us and stimulate our emotional life.

This, in itself, is very important for our understanding of financial and economic behavior. By definition, once people start to group together, behaviour within the context of the group becomes non-random. This is why -- despite what some statisticians may say -- financial market price action has a non-random dimension. But this is not all. Somewhat startlingly to someone who recognizes it for the first time, market price action persistently expresses itself in a three wave pattern that mirrors the processes of learning, and of energy absorption in living organisms. The crowd, in other words, is not different to other parts of Nature. As such, it is intrinsically predictable.

Tony Plummer, Forecasting Financial Markets