how do you predict the future?

wekim

Junior member
36 7
I'm talking about directional trading here.

I understand that with arbitrage or spreading against different instruments, you can find one market thats out of line with another and lock in some profit. That makes sense.

But when you trading directionally, you are trying to predict the future. You are saying, "I'm going long here because I think in the future, the buying pressure will overwhelm the selling pressure and price will rise." And vice-versa for short. You need to use your price/volume analysis or indicators or whatever to help you determine that. But how do you do it?

To steal a picture from DT's webinar:
 

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tomorton

Legendary member
7,190 945
On the simplest level, we know two things about market TA - once prices have established a trend, the most likely thing to happen tomorrow is that the trend will continue: but every trend is marked by short-term pull-backs. These two characteristics give us direction and entry points.

Support/resistance level studies combined with volume data for market behaviour at those levels help us predict price levels that will porobably be more significant, but is the game any more complicated than that?
 

rsh01

Experienced member
1,184 299
You don't predict the future. Once you have acquired an edge (after spending thousands of hours learning/practising etc), you will be taking trades with a stop loss of 1 (for example), and a target profit of 2 (so rr 1:2) and your edge will mean you are right >33% of trades, and you will then be making money. How good your edge and MM is should determine how much >33% you are right. Its possible a trader may have a plan to sell the market if it pops down and a plan to buy the market if it pops up, so they don't care which way it goes. Their focus is on preparing for both eventualities, and executing these trades to the best of their abilities.

Noone can predict which way the market is going. (Apart from the baghdady's of this world)
 
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trendie

Legendary member
6,085 974
You put aside any belief that markets can be predicted.

In directional trading, you determine the most probable outcome given the recent trading direction.
I suppose, in trend-following, the axiom is that the market is more likely to continue in its current direction than to change.

Using your analogy, another way to look at it is;

You are saying, "I'm going long here because I think the buying pressure has already overwhelmed the selling pressure, and price has risen beyond the indeterminate range it was previously in".

If the price seems to be rising, it likely to continue to do so, unless it settles below X.
And vice-versa for shorts.

Alternatively, if price doesnt seem to be rising or falling, you determine the upper and lower regions of the range that need to be broken for the uncertainty to be broken.
No predictions. No guessing. Just wait for the fact, then jump on-board as best you can.

The only prediction is the broker will for sure be making a commission/profit irrespective of the direction ANYONE takes.
 
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The Leopard

Experienced member
1,877 1,020
You are not trying to predict the future (no need to add future, by the way - what else would one predict? The past? The present?). You are trying to make money.

Getting the direction right is a small part of it.

For example, most new traders are concerned with win rate. If you offered them a win rate of 66%, they would prefer this to 50%. I am not sure why - try going into a shop and paying with win rate.

Two months ago, I had a win rate of 50% - no better than a coin flip. I made a little over 10% - a vendor would laugh at that of course, but as a trader I was quite happy with it.

This month I have thus far a win rate of 66%, and a return of a little under 8%. Which month wold you prefer?

Don't try to predict the future, try to make money.

By the way, if you want a system that will get the direction right (or predict the future if you prefer) better than 90% of the time, just ask and I will give you one, free of charge.
 
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ChocolateDigestive

Experienced member
1,153 280
All good stuff. So if trends are more likely to continue than reversing all we need to do is find instruments that are trending strongly with little or no pullbacks. then trade with them watching out for any obvious obstacles ahead. Add in sensible money management and finding instruments with low costs compared to position size and you have it made.
 
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DionysusToast

Legendary member
5,961 1,497
I am not sure if this is a semantical or a philosophical discussion.

Whatever type of trading you do, be it outright directional trading or some form of spread/stat arb strategy, you are putting money into something where one future outcome will see your funds increase and one will see your funds decrease.

For the life of me, I can’t see how this can be called anything other than a prediction.
 
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trendie

Legendary member
6,085 974
I am not sure if this is a semantical or a philosophical discussion.

Whatever type of trading you do, be it outright directional trading or some form of spread/stat arb strategy, you are putting money into something where one future outcome will see your funds increase and one will see your funds decrease.

For the life of me, I can’t see how this can be called anything other than a prediction.
I suppose it's semantical, now that you raise that angle.

If you use the term "predict", it raises emotional, psychological notions of being "right" and "certainty", and the slippery wedge of adding to losers and doubling up, etc, cos it just "has to" go in a particular direction.

If you think in terms of "likely to happen", built into this notion is the account-protecting self-awareness of being wrong, and getting out sooner.
 

trendie

Legendary member
6,085 974
For starters you'll need a DeLorean and a flux capacitor.

Peter
Or, if you can't get hold of those, some of the funny powder DeLorean got caught with.
It makes ANY car a DeLorean, and the SatNav take on all the characteristics of the said FluxCap.
(did that film have oedipal undertones?)
 

wekim

Junior member
36 7
On the simplest level, we know two things about market TA - once prices have established a trend, the most likely thing to happen tomorrow is that the trend will continue:
I suppose, in trend-following, the axiom is that the market is more likely to continue in its current direction than to change.
But this is a prediction. Who says its more likely to continue? That is your prediction based on your experience. Obviously someone disagrees with you and is willing to take the other side of your trade.

Using your analogy, another way to look at it is;

You are saying, "I'm going long here because I think the buying pressure has already overwhelmed the selling pressure, and price has risen beyond the indeterminate range it was previously in".
If buying pressure has already overtaken selling pressure, then how are you not sure that you aren't getting in super late and buying the top?
 

wekim

Junior member
36 7
You are not trying to predict the future (no need to add future, by the way - what else would one predict? The past? The present?). You are trying to make money.

Getting the direction right is a small part of it.
How else do you make money other than predicting the correct direction? (aside form arbing)

I don't really see what winrate has to do with it. Obviously 10% roi is better than 8%, anyone would take that.
 

The Leopard

Experienced member
1,877 1,020
How else do you make money other than predicting the correct direction? (aside form arbing)

I don't really see what winrate has to do with it. Obviously 10% roi is better than 8%, anyone would take that.
Actually, most newbies wouldn't - they'd go for the high strike rate.

Anyway, do you want my system or not? It will win over 90% of the time, which is as near to being able to predict the future as you're likely to get.

You want to predict the future and it is important for you to do so, so I'd advise you to take up my offer.
 

DionysusToast

Legendary member
5,961 1,497
I suppose it's semantical, now that you raise that angle.

If you use the term "predict", it raises emotional, psychological notions of being "right" and "certainty", and the slippery wedge of adding to losers and doubling up, etc, cos it just "has to" go in a particular direction.
That is my take on it. I think that people that are against using the word 'prediction' in trading are doing so because they associate it with certainty.