Why are we trying to predict the unpredictable?

[green123]

I am a new trader (am I really?).

After loosing some money and patience and what not, I am getting a repeated question in my mind !!!

Why I am trying to predict something which I need not?
When I travel in a highway( or any road for that matter), I never try to predict which way the road is going to turn !!! Just keep going along the road.

What would be the impacts if I try to predict the road path? Would it be catastrophic?

Is this a possibility in the stock markets too? .....Why predict it when we can go along the path shown by it?

Do I make sense or am I being ambiguous (just like my understanding of the stock markets )

Kind request : Do not rubbish this question. Just help me enlighten my understanding of the stock markets.
:idea: :idea: :idea: :idea:

 

[jonsjon]

Some food for thought...

You can try to predict and crash and burn...

Or try to make money...

 

[jackolan]

The market is not a road.

The best analogy is that you can generally predict both.... I predict that if I travel from Delhi to Mumbai then I must travel South and West. I can also predict that over the next 5 years, the market will rise (e.g. FTSE100 should be 6500 or even 7500 by 2014).

However, the problem is the timescale... With driving, I cannot predict which way the road will be going in 30 seconds (unless it is a straight road!!), likewise I cannot predict which way the market will go in 30 seconds (unless there is a strong trend).

Because it's a long drive from Delhi to Mumbai, IF I can correctly predict the bends on the multilane highways then I can save a lot of fuel and some time by always taking the inside of the bend.

In the same way with the market, IF I can predict when the market is going to go down then I can get out of my positions (or better, short sell) and when I predict the market to go up I can buy. In this way, I can save time and maybe make the same number of points over a shorter period of time.

However, like the road, the cost of getting the prediction wrong is very high. If the road bends left when I predicted a right, I am running a serious risk of collision. So as soon as I see it is the wrong decision I must change course.

The problem is one of greed and/or poverty. I would like to predict the bends in the road because the cost of fuel is so high relative to my wage (counterbalanced by the fact that the cost of a collision is even higher). In the same way, I would like to predict the market because I only have small funds to invest.

If I am already a rich man, and I invest a lot of funds in the market, I don't care about the small "bends", only the destination... because I know that at my destination (in five years time) I will be much richer than I already am.

 

[nile_croc]

I will say this: the most profitable trades i've ever made, are trades where I decided not to speculate, and rather to trade. I don't know about you, but I absolutely SUCK at trying to "call" a market, so instead I just trade it. After all, it's not about trying to make money on every trade, it's about making big $$$ when a trade goes in your favor.

Oh, BTW, don't watch CNBC, and don't listen to the talking heads on "Bulls & Bears," "Cashin' In," etc. Believe me, if these guys knew where the market was going to go, they'd all be trillionaires. And another thing, every time you hear someone say the phrase, "I predicted that," dont walk, RUN!!!

 

[N Rothschild]

I will say this: the most profitable trades i've ever made, are trades where I decided not to speculate, and rather to trade. I don't know about you, but I absolutely SUCK at trying to "call" a market, so instead I just trade it. After all, it's not about trying to make money on every trade, it's about making big $$$ when a trade goes in your favor.

Oh, BTW, don't watch CNBC, and don't listen to the talking heads on "Bulls & Bears," "Cashin' In," etc. Believe me, if these guys knew where the market was going to go, they'd all be trillionaires. And another thing, every time you hear someone say the phrase, "I predicted that," dont walk, RUN!!!

see im the opposite, im far better at calling market direction than i am trading it..

 

[Calinor]

Why I am trying to predict something which I need not?
When I travel in a highway( or any road for that matter), I never try to predict which way the road is going to turn !!! Just keep going along the road.

When you drive you make many predictions all the time of things that are outside of your control. When a car indicates, you might predict that it will slow at the next turning and turn right. It might not though. The car may just carry straight on, it is outside of your control. But it is still wise to predict that it might slow, and so that you too following behind might also want to slow. The same would hold true at traffic lights that are turning red. If you don't predict, then you may have an accident.

Also, when you write "Why I am trying to predict something which I need not?" are you suggesting that you can trade without making any sort of prediction? Why would I buy unless I thought it was going up? Even if the trend is up, or it is going up for most of the day, you might think that it will keep going up. But that is a prediction. If you aren't making a prediction, whether short term or long term, then how are you even deciding which way to trade and when? And why do you think it is unpredictable?

 

[nile_croc]

There is a difference between prediction, and planning.

Prediction: Talking head says: "Gold will go to 2000/oz". Talking head doesn't trade, he just sells books on how to trade, has a snazzy website, and does a blog and newsletter emphasizing all the times he's right and ignoring the times he's been wrong. Talking head goes on "Bulls and Bears" every Saturday and touts his wonderful accomplishments.

Planning: Trader: "Gold is currently breaking 1000, which may indicate the start of a new trend. I'll get in here with limited risk and a trailing stop. Who knows how high it will go but I'll ride it as long as I can. If price gets overextended (based on pre-selected criteria), I'll take profits."

 

[Splitlink]

I don't understand how anyone can trade a market without predicting which way it will go. That we are frequently wrong, is another thing, but when we enter a trade we are predicting direction.

The only other way to do it is to toss a coin. I don't do that, therefore I must make a prediction.

 

[nile_croc]

Are you "predicting" when you think a trend will continue, or simply making an assumption?

When I trade in the direction of the trend, I am simply making an assumption, and planning for the unpredictable.

 

[mrsoul]

I am a new trader (am I really?).

After loosing some money and patience and what not, I am getting a repeated question in my mind !!!

Why I am trying to predict something which I need not?
When I travel in a highway( or any road for that matter), I never try to predict which way the road is going to turn !!! Just keep going along the road.

What would be the impacts if I try to predict the road path? Would it be catastrophic?

Is this a possibility in the stock markets too? .....Why predict it when we can go along the path shown by it?

Do I make sense or am I being ambiguous (just like my understanding of the stock markets )

Kind request : Do not rubbish this question. Just help me enlighten my understanding of the stock markets.
:idea: :idea: :idea: :idea:

The game is ALL ABOUT prediction- whether it's ultra-short term or long term positioning.
It is NOT about simply following the market- there is no money doing this.
In this game, you get paid to predict right.
You need a method that has, statistically significant, predictve value in order to succeed at this game.

 

[mb325]

I don't think 'prediction' is the right word. The market is certainly unpredictable but the fact that some people (supposedly 5%) SEEM to be able to predict it would suggest that...they aren't predicting. Instead they're just waiting for the odds to be in their favour before putting their money on the line.

A pure PA trader might wait for a specific candlestick setup. Some indicator wizz might wait for whatever-it-is to become oversold or something-or-other to go above 70. Others wait for a system to crunch a load of numbers and tell them what to do.

All of these approaches involve reacting to the market, not predicting it.

 

[Splitlink]

Predict, assume. I think that we are splitting hairs if we are discussing a choice of words like that. I, at least, come to a decision on the direction that I believe the market will take before I enter a trade.

I don't inderstand how another trader can trade any other way unless he is a coin tossing gambler

 

[mrsoul]

Predict, assume. I think that we are splitting hairs if we are discussing a choice of words like that. I, at least, come to a decision on the direction that I believe the market will take before I enter a trade.

I don't inderstand how another trader can trade any other way unless he is a coin tossing gambler

This really is the BOTTOM LINE Splitlink.

 

[Igat]

Predict, assume. I think that we are splitting hairs if we are discussing a choice of words like that. I, at least, come to a decision on the direction that I believe the market will take before I enter a trade.

I don't inderstand how another trader can trade any other way unless he is a coin tossing gambler

Because vocabulary is very important (especially to the traders psychology) and I am clear to myself on one thing in trading and that is I do not predict. Every trade I make is based on balance of probability v risk reward ratio.

If I am predicting then I am gambling.

 

[dcraig1]

Every trade I make is based on balance of probability v risk reward ratio.

If I am predicting then I am gambling.

So where do these odds come from then ? It is prediction by any other name or perhaps to put it more accurately you are assigning a confidence level to your prediction. To put it bluntly, if a trader goes long, they are predicting that the market will rise. No matter how you spin it, that is the case.

Yes vocab is important, and especially important in avoiding self deception.

 

[Splitlink]

Because vocabulary is very important (especially to the traders psychology) and I am clear to myself on one thing in trading and that is I do not predict. Every trade I make is based on balance of probability v risk reward ratio.

If I am predicting then I am gambling.

This can go on and on!

Who's law of probability and risk are you adopting? In the final analysis it must be yours,
but everyone else may make a completely different assessment. Each one of us is predicting a different outcome depending on many factors over time, news items, etc.
If you differ, and we all do, then you are predicting that what you do is the correct move to make because of your prediction of the final outcome of your trade.

The only other kind of trade, as I said before, is to take a pure gamble.

Split

 

[nile_croc]

Possible analogy:

Assumption/Planning: I leave the house early for work, because I am assuming, just like every other day, that there will be lots of traffic. I put on my seatbelt to plan for the unexpected, or unpredictable, just in case. I assume, based on probabilities (previous experience), the amount of time it will take me to get to work that day and plan for it.

Prediction: I hear a helicopter in the distance, so I speculate that there is a terrible accident on the freeway backing up traffic. Although the only item of evidence that I have for this is the sound a helicopter. It may be a traffic reporter simply looking at traffic, it could be the police looking for a fugitive, who really knows? I am, however, it this scenario simply predicting, or making a guess/trying to foretell what this event actually is given no previous scenarios in which to gauge a probability. From this prediction I can imagine any scenario possible: how far traffic is backed up, which roads will be clogged up as a result, etc, etc. Once you get in to the realm of pure speculation, anything is possible.

Reaction: It turns out that my guess, even though far-fetched, was right (Sometimes they are right). I assume, based on the position of the helicopter etc. that I am going to have to get off the freeway soon and turn on to a local road. I also assume, given the facts in the current scenario, that the local road will be exceptionally busy, and because of this, I will be late to work. I call in to work and tell them I am running late, and therefore plan for this scenario.

 

[Igat]

Simple words are too powerful. Two words may have the same definition but mean completely different things. Today is a great example. My kids call me dad I would be hurt if they called me father.

Whether or not I am predicting matters not a jot. Whether I am kidding myself I care not. It works and that matters.

Do you spreadbet or spreadtrade? Its definition is the same but emotionally it means two completely different things.

I dont predict. I analyse probability V risk reward.

 

[dcraig1]

Equating prediction and guessing is just plain wrong.

Weather forecasters make predictions all the time. They frequently assign probabilities to those predictions. The predictions are ultimately based on assumptions. An assumption is a fact or statement that can reasonably be held to be true.

 

[nile_croc]

I dont predict. I analyse probability V risk reward.

That's exactly what I am talking about. You trade based upon what has happened in the past, and use those past experiences to form assumptions. That's what traders do.

What I am talking about as far as prediction is what I see people do all the time. I have a myriad of people running around in my office all day long: "The market will do x, this stock/that stock will do x/y, the market will bounce at position z..etc..etc ad infinitum." These are nothing more than mere sloppy predictions, and not assumptions based upon carefully formulated analysis and pre-selected criteria. The talking heads (I know I keep bringing them up) are notorious for this kind of behavior. You cannot trade on these predictions. I hear a talking head say "I think you should buy x." Okay Mr. Talking Head, how much of x should I buy, how long do I hold it for? When/where do I sell?