The markets yo-yo for various reasons and even as you spend hours number crunching in the hope of untangling trends, you can?t claim to have cracked the code yet. The Sensex is often billed as the nation?s economic pulse and the markets are literally personified.

Since no pattern seems to fit and no formulae in sync with this graph, you can only assume that the fundamentals are highly unpredictable.

Even though our economic policies may serve as a guide as to how the markets will move in the long term, the daily swings ? ups and downs ? are still an enigma. News, speculation, insider trading, and propaganda bring about these short-term movements and the reasons for the fluctuations could be many. At the end of the day, it is the people who drive market. Among them are retail traders, who constitute 25-30% of the market.

Says Michael Mauboussin, author of More Than You Know: Finding Financial Wisdom in Unconventional Places, ?To generate excess returns in markets over time, it?s important to have some insight. If your inputs and thinking are the same as everyone else?s, it?s unlikely that you?ll make a kill. You may ask why people have a fixation on a particular method while gauging the markets and are not willing to take a flexible stand.

The more likely answer, in my opinion, relates to beliefs. While most people are happy to use set models, very few are willing to examine their beliefs: where they came from, how they?ve been shaped and what behaviors they lead to. Really, good investors work and think hard and are flexible in their attitude.

That?s what diversity is ultimately all about. It?s not only hard, but contrary to how most people behave. Psychologist Phil Tetlock once asked over 300 experts for literally thousands of economic and political predictions over a 15-year span. The results, which he presents in his book Expert Political Judgment, are not encouraging: experts are poor predictors on balance, and fall into many of the psychological traps as everyone else.?

Human behaviour is complex, unpredictable and different; thus here is no formula that can accurately tell us what to expect. The reason we say that the markets are alive is because the people who are connected to the market keep it swinging. These can be brokerage houses, Dalal Street brokers, banks, mutual funds, online traders and just about anyone who?s in the market to make his moolah. To truly understand the market flow, an investor must also gauge the mood of the daily traders. Hence, you should concentrate on understanding investor behaviour and mood. This is a powerful tool that will increase your odds in the gambles you make when used effectively.

An entire nation can move ahead based on the general outlook of its people.

If it is one of hopefulness and belief, all obstacles can be overcome. Flow is the mental state of operation in which the person is fully immersed in what he or she is doing, haracterised by a feeling of energised focus, full involvement, and success in the process of the activity.

Proposed by psychologist Mih?ly Cs?kszentmih?lyi, the concept of flow has been widely referenced across a variety of fields. Germany and Japan today, two highly-developed nations today, were dead and buried to the world when India got its independence. Their economic wheels were in reverse and revival seemed a distant dream. Yet their undying spirit kept them going and today we are struggling to catch up with them!

Emotional numbers

Sometimes, the numbers that we see flashing through the Sensex screen are genuine outcomes of economic policies. However, many of the short-term movements are nothing but emotional numbers.

These movements occur due to the investor?s mood based on what they feel about that day, what they hear and how they react. Everyone wondered why Anil Ambani, whose Reliance Power IPO could be traced back to the beginning of our current market instability, decided to shell out bonus shares. With no mathematical sense backing the decision, the real reason behind it could be to win peoples confidence back and improve the overall market sentiment.

Reliance seemed to have wanted to make the investors, happy. However, they looked at this move with suspicion.

The current mood could be explained by the quicksand concept, which occurs when we start believing one bad thing leads to another and another, till we feel that the current timing is jinxed with bad luck. A lot of this is psychological and hence we end up trapping ourselves in a cycle of misfortune and this is something we must try to come out of.

Judging the numbers based on emotion and mathematical calculation would help traders and investors go a long way. Remember when you are dealing with unpredictability, knowledge is your best weapon. An interesting thing to look into in correlation to understanding markets and Sensex movements could be behavioral scientists who could tell you the general mood of traders on a given day.

We all go to economists, astrologers and other religious figures for advice.

However, consultations with people who study human behaviour seem like a smarter option, as this is the primary pulse of our market fluctuations.

Reading books on behavioral science, learning to pick up the vibes and being able to judge how the people are going to react is what will truly make you a successful player.

The sensitivity check is a key area whose results could provide you with a better view than before.