Why are we trying to predict the unpredictable?

[tomorton]

green123 - Are you recommending trend-following as opposed to, say, contrarian investment? Both involve some prediction - a trend-follower predicts the established trend will continue. A contrarian predicts the flat-lining price will dramatically rise when the market realises the company's potential. The probability of one happening might be higher than the other, but both are based on predictions, both can be wrong.

Because we are humans and can think in the abstract (we can all see a mental picture of how things will be in the future if we do X or Y or Z today), everything we do is at least partly based on predictive ability, not pure instinct to satisfy an immediate basic need. So when we cross the road, it is because we can imagine ourselves on the other side and predict that we will reach it safely. The fact that we cannot be 100% sure does not mean that trying to cross the road is impossible. But don't try this on a motorway, that would be too contrarian.

 

[dcraig1]

"An assumption is a proposition that is taken for granted, as if it were true based upon presupposition without preponderence of the facts."

Assumption - Wikipedia, the free encyclopedia

For practical purposes, an assumption is a priori knowledge:

A priori and a posteriori - Wikipedia, the free encyclopedia

 

[nile_croc]

Wictionary on "Predict"

to predict (third-person singular simple present predicts, present participle predicting, simple past and past participle predicted)

1. (transitive) to state, or make something known in advance, especially using inference or special knowledge
2. (intransitive) to foretell or prophesy

 

[nile_croc]

From the Wikipedia article that dcraig posted above regarding "Assumption":

"In business planning and business plans, an assumption is an assertion about some characteristic of the future that underlies the current operations or plans of an organization"

Sound like what a trader does?

 

[jackolan]

I think you are both saying the same thing. Predictions cannot be made without assumptions. And assumptions can always be measured in a probabilistic way.

It doesn't matter if you call it "probability vs risk reward" or "expected outcome given previous performance" it's still informed gambling.

 

[dcraig1]

From the Wikipedia article that dcraig posted above regarding "Assumption":

"In business planning and business plans, an assumption is an assertion about some characteristic of the future that underlies the current operations or plans of an organization"

Sound like what a trader does?

No it doesn't.

The reference is to assumptions in planning models. For example costs of raw materials, regulatory environment etc etc. The assumptions are statements about the parameters of the business operation. They are inputs to the planning model.

It will be asserted that the planning model (and it's predictions) should be valid so long as the assumptions remain true.

 

[nine]

gambling ... not that word

You mistake a business risk with personal entertainment at your peril. I gamble at Casinos not in my daily business.

 

[nile_croc]

I think you are both saying the same thing. Predictions cannot be made without assumptions. And assumptions can always be measured in a probabilistic way.

It doesn't matter if you call it "probability vs risk reward" or "expected outcome given previous performance" it's still informed gambling.

I would agree with that.

I'm not trying to split hairs, I just think there's a big difference between what the talking heads and touts on CNBC do, and what actual profitable traders do.

 

[nile_croc]

No it doesn't.

The reference is to assumptions in planning models. For example costs of raw materials, regulatory environment etc etc. The assumptions are statements about the parameters of the business operation. They are inputs to the planning model.

It will be asserted that the planning model (and it's predictions) should be valid so long as the assumptions remain true.

How is that different? I assume that costs are involved: i.e. commissions, losses, etc. I have a planning model, i.e. I will do so many trades given this setup, etc. I will stop trading at a certain level. Trading is a business.

 

[jackolan]

gambling ... not that word

You mistake a business risk with personal entertainment at your peril. I gamble at Casinos not in my daily business.

Life is a gamble... I don't call it entertainment. The fact that gambling CAN also be entertainment is irrelevant. The principle is identical.

When I start a business, I'm gambling with the equity... my gamble is that I can run the business well and create a product or service that I can sell at a profit.

The main percieved difference is that if I go to a casino and put the same money down on RED, I have no control over the outcome.

However, I would argue that you have no control over your own business either (at the higher level)... you were either right about the level of demand and your inventory and staffing skills and so you make a profit, or you were wrong and you make a loss.

Do you think you have any control over the stock market?

Trading is definitely gambling... afer you make your decision you have no control. You can try to INFORM your decision, but you certainly cannot CONTROL the outcome. And if you have no control, you are "gambling", "taking a risk", "predicting", "assuming"... call it what you will. I prefer the direct approach!!

 

[nine]

The same arguments repeat again - which is probably a good thing because its new money and fresh faces.

Lightning I'm off for now. Good luck mate. Enjoy

 

[jackolan]

Dr Kwame McKenzie : "Gamblers aren't all the same.Some do it for the money,but many casino gamblers do it for the thrill."

I'd say if you are trading "for the thrill" then you are being "entertained"... if you are trading "for the money" but "get a thrill" then you are "investing".

It's still gambling.

 

[GCC]

Why I am trying to predict something which I need not?

Perhaps I may rephrase this into: "Why am I trying to predict the direction of the market when I don't have any setup to base on?"

If I correctly assume you are meaning this, then the solution may be very simple: be disciplined, stick to your setup.

It is a very common thing that even really good traders lose discipline sometimes, due to various reasons like emotions, rest, social issues, etc. Learning to calm your mind is the very first thing you need to do (and you may find very hard to do) in trading.

The really tendious discussion on prediction/assumption from above posts actually revolves around the point that whether you are making your guess (or prediction/assumption/whatever you like) with enough information, either technical or fundamental, instead of just your gut feeling. Of course no one is going to make correct trades forever, so it is important to stick to a well-tested system so that you win more than you lose.

 

[Splitlink]

I don't believe that trading is gambling. Neither do I believe that a losing trader is, necessarily, a gambler. He may be taking losses but, if he is working hard on a system that he believes has good prospects of success then the losses he makes are calculated.

I do believe, though, that there is luck in everything in life. From the wealth and country into which you are born, the education and job that you get. -the future wife that you meet and the chance that you were in that place at that time when you met her. That is very different from gambling, it is luck and the two must not be confused.

 

[superfly]

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.

altenative:
Mugging is a type of theft, in which the perpetrator (the mugger) accosts the victim in a public place, , and demands money and/or valuables through the use of force or fear.

Maybe not predict te road, just predict when people on the road are most vunerable for an ambush.

 

[Igat]

Not using the word prediction is simply a personal choice. It implies a few things that do not fit with my trading style. Just like I consider myself a trader and not a gambler.

Whilst on the casino analogy here. on a micro scale every spin of a roulette wheel is a gamble for both the punter and the casino. Both sides can win and lose money on that turn of a wheel. However on a macro level the roulette table is only a gamble for the punter as statistically the odds are in the favour of the house. The house has an edge and therefore is not gambling. So if a trader had such an edge wouldn't it go that although on a micro scale each individual trade may be a gamble but in the scheme of things they are traders and not gamblers.

 

[Calinor]

So the argument goes from the difference in meaning between assumption and predicting, and now between gambling and trading. You should understand why this type of argument is pointless. Words have different meaning to different people as was already mentioned. One person's idea of what gambling is may be identical to your idea of what trading is. They just use a different word. Lets argue about trading things and not words.

Why I am trying to predict something which I need not?

If you don't need to predict, then you can make money without predicting, and if you can do that, then by all means, do that. If you can't trade successfully like that, then you have answered your own question.

 

[demeanor]

hi there !!

hmmm thats an interesting one. Predicting is human nature and yes rumours, predictions will rule the stock market. But its always better to predict that there would be some loss and how to recover from it. There is a saying that " Never expect profits, but anticipate for losses". Thats how one has to go about trading.

Prediction is good, but it will make us sad if that prediction doesnt go hand in hand with us.

So Just understand the logic of the markets, have patience and predict to cover the losses, then your winnings will automatically reach u.

All the best

 

[green123]

Excellent. Though I have been going through the replies every now and then, I was still comprehending lots of things.

Now,

1. Just invest and forget your money if you do not need quick returns
2. If you want to trade, then take it up as a profession
3. Preparing one-selves for a profession has to be done
4. Just do your maths every day..how much you have, how much you want

Need for prediction , technical analysis, etc etc..has happened because I WANTED TO WIN ALL THE TIME.

Which never happens elsewhere in LIFE. Why am I expecting that to happen in Stock market alone.

Like how I mitigate my losses elsewhere, I have habituated myself to mitigate the Losses in trading also. How much I can loose. How many times in a day I can loose. How long can I keep loosing. How losses can be stopped.

Trying to answer these questions have given me enough skills to make money in the process.

Luv u All Friends
Green (can take few Reds too)

 

[Splitlink]

Not using the word prediction is simply a personal choice. It implies a few things that do not fit with my trading style. Just like I consider myself a trader and not a gambler.

Whilst on the casino analogy here. on a micro scale every spin of a roulette wheel is a gamble for both the punter and the casino. Both sides can win and lose money on that turn of a wheel. However on a macro level the roulette table is only a gamble for the punter as statistically the odds are in the favour of the house. The house has an edge and therefore is not gambling. So if a trader had such an edge wouldn't it go that although on a micro scale each individual trade may be a gamble but in the scheme of things they are traders and not gamblers.

Today my computer has a problem. Something is the matter with Flash and, until my able son comes home to see what's wrong, I am unable to trade. Whatever I see on the day's chart. whether it has gone up, down or sideways, is it not luck that I did not trade? think that this happens all through life. One can make all the plans possible and, in many cases his plans will be fulfilled but there is always the element of luck there, good or bad. which cannot be taken into consideration. I am not talking about mindless gambling, it is calculated planning. Luck is an unknown quantity that comes into the equation, regardless.

"The best laid plans of mice and men" etc.