Traderj

Most people make a big deal out of market prediction. They think
they need to be right 70% or better in order to "pass" the exam that
the market gives them. They also believe that they might get an "A"
if they could be right 95% of the time. The need to predict the
market steps from this desire to be right. People believe that they
cannot be right unless they can predict what the market is doing.

I know traders who continually make 50% or more each year with
very few losing months. Surely, they must be able to predict
the market very well to have that kind of track record. Well,
I recently sent out a request for predictions and
here is what I got back from some of the better traders.

Trader A; "I don't predict the market, and I think this is a
dangerous exercise."

Trader B: "…these are just scenarios, the market is going to do
what the market is going to do."

Ironically, I got these comments from them despite the fact that I
was not interested in any of their specific opinions, just the
consensus opinion.

So how do they make money if they have no opinions about what the
market is going to do? Well, there are five critical ingredients
involved:

They follow the signals generated by the system.

They get out when the market proves them wrong.

They allow their profits to run as much as possible—meaning they
have a high positive expectancy system.

They have enough opportunity so that there is a great chance of
realizing the positive expectancy any given month and little chance
of having a losing month.

They understand position sizing well enough so that they will
continue to be in the game if they are wrong and make big money when
they are right.

Most traders, including most professionals, do not understand these
four points. As a result, they are very much into prediction. The
average Wall Street Analyst usually makes a large six-figure income
analyzing companies. Yet very few of these individuals, in my
opinion, could make money trading the companies they analyze.
Nevertheless, people believe that if analysts tell you the
fundamentals of the marketplace, someone can use that information to
make money.

Others have decided that fundamental analysis doesn't work.
Instead, they have chosen to draw lines on the computer or in their
chart book to analyze the market technically. These people believe
that if you draw enough lines, and interpret enough patterns, you
can predict the market. Again, it doesn't work. Instead, cutting
losses short, really riding profits hard and managing your risk so
that you continue to survive is what really makes you money. When
you finally understand this at a gut level, you will know one of the
key secrets to trading success.

Hawkman95

Please pardon my ignorance. Isn't the first of the five critical ingredients mentioned a prediction. I am assuming that the signals tell you to either buy, sell or do nothing and if you are buying or selling, isn't that a prediction?

Is it where people go wrong, not that they have to be right, but rather they are not willing to be wrong? Thus they don't get out and cut their losses.

Traderj

No it's not.. I see how you could come to that conclusion but the use of the word predication is where people just make statements with no information or facts to back up. I see it all the time when the market is moving upwards for a few days in a row there is always that group of people that talk about how the market is "coming down today" they have nothing to base that on other they guessing...

I guess if the word was being used in a technically correct way perhaps you are right.. but in my mind if you are using a method, whatever it might be, Pivots, trend lines, TA no matter what you are not trying to predict you are allowing YOUR method to do so... I guess that part should be made more clear.. simply stated do whatever method you are using tells you to...

Isn't that both sides of the same coin? As stated in another thread I have seen tons and tons of people that will endlessly trade a method even though they lose money with it month after month.. why do they do so? Because they are right 85% of the time.. they don't care that the R factor is so out of whack that the 15% of the time they are wrong totally wipes out all their profits and more.. they just have to be right...

The not willing to be wrong tends to be when they have already entered a trade and when it turns ugly on them they refuse to accept it's wrong and get out....

So to my mind there is a difference.. not saying it's huge but it is there.

Hawkman95

I can see the difference and thank you for claifying prediction.

Your example of people continuing to trade a losing system probably also fits one definition of insanity, which is doing the same thing over and over again expecting different results.

Traderj

I'll tell you something which is very scary... your definition is quite accurate.. I truly do know people that have spent a year or longer losing money... but they just don't care or seem to as they have such a high winning rate... they get all depressed and so forth when that one big loser hits.. but they go off on a winning streak of two weeks and think everything is all right.. meanwhile their balances get smaller and smaller... it's very odd the things our minds do to us.