Illusory correlation
Seeing a link between two things that aren't related, usually because the times they happen together are memorable and the other times are forgotten.
In plain English
Every yes-or-no prediction has four outcomes: hits, false alarms, misses and quiet days. Memory keeps the hits and drops the rest. To check a link, write predictions down in advance, fill all four boxes and compare how often the outcome follows the signal with how often it happens without it.
Uncle Gary explains
Aunt Linda is sure the phone always rings when she's in the bath. It does ring when she's in the bath. It also rings the other 23 hours of the day, but those calls are not dripping.
Why it matters for your money
Trading forums are full of indicators that 'called the crash'. The question is how many crashes they called that never came, and how many real ones they missed.
Where we tested it
Related terms
All glossary terms. Educational content, not financial advice.