Narrative fallacy
Why do we invent causes for market moves that the data itself cannot confirm?
In plain words
The narrative fallacy is the habit of arranging a price move into a tidy story with a single cause, after the fact. The sequence of prices shows what happened, not why, and many different causes can produce the same chart.
Why it matters
A convincing story can make a random outcome look predictable and repeatable, which encourages larger positions and rules built on explanations rather than on measured behaviour. Traders who cannot separate the size of a move from its supposed cause tend to overfit to a handful of memorable weeks.
In a real week: BTC, week of 9 January 2023
In the week of 9 January 2023, BTC rose 21.86% from 17127.83 to 20871.5, with a range of 24.28% and realised volatility of 61.5% a year. That weekly return ranked in the 98th percentile of 256 weeks of history. The prior four weeks returned -2.03%, 0.56%, -1.28% and 3.07%, and ETH moved in the same direction with a 0.93 correlation, lagging by 1.52 percentage points. Nothing in these figures names a cause, yet BTC remained 56.49% below its 52-week high and closed in the upper third of the week range.
A common mistake
Treating a plausible story as an explanation. If several stories fit a given price move equally well, the chart has not chosen between them, and none is a testable reason for the next move.