Sunday Debate: prediction or reaction

[barjon]

Here's this Sunday's topic for you.

In the recent wot thread I said that I thought trading was not about prediction, but about finding opportunity and taking the market as it comes. Perhaps I should have said more simply that it was about reaction not prediction.

So, reaction or prediction - what floats your trading boat.

good debating

jon

 

[MrGecko]

predictions fall into two categories:

* random guesses
* a reaction to information

true?

 

[Atilla]

predictions fall into two categories:

* random guesses
* a reaction to information

true?

False on both accounts imo...

- random guess is not a prediction - it is a simply that - a guess. The term prediction has an 'implicit' due consideration attached to the word...
- reaction to information is not prediction - it is action to an event as in the present tense.



fwiw - imo trading is reaction based on TA or FA. The stops and limits would be predictions based on pre-consideration.

 

[wackypete2]

False on both accounts imo...

- random guess is not a prediction - it is a simply that - a guess. The term prediction has an 'implicit' due consideration attached to the word...
- reaction to information is not prediction - it is action to an event as in the present tense.



fwiw - imo trading is reaction based on TA or FA. The stops and limits would be predictions based on pre-consideration.

Well said.

Peter

 

[tomorton]

Prediction in trading is common but makes no sense. In the classic situation, if a trader analyses the available information and predicts that a stock is worth buying and its price will rise, but other market players are not buying, what use is this analysis?

 

[Splitlink]

Here's this Sunday's topic for you.

In the recent wot thread I said that I thought trading was not about prediction, but about finding opportunity and taking the market as it comes. Perhaps I should have said more simply that it was about reaction not prediction.

So, reaction or prediction - what floats your trading boat.

good debating

jon

Jon, you are gradually talking me to a full stop!

 

[timsk]

So, reaction or prediction - what floats your trading boat.

After last weekend's 'Sunday Debate', I'm hesitant to participate in this one - but here goes . . .
I think we react to past events, i.e. FA and TA etc. and, based on our assessment of these events, we attempt to predict what will happen next - based on probability. Our level of competence and expertise in doing the former will dictate how successful we are at the latter. However, as we all know, it's not essential to be very good at this in order to make a profit. Some traders are successful even though their 'predictions' are only correct 40% of the time - or less. In many cases, the predictions a trader makes are correct upwards of 70% of the time.

If someone does a parachute jump and the canopy fails to open, most people would be happy to bet significant sums that the jumper will not survive the fall. But they don't 'know' for certain that the jumper will die until s/he hits the ground. (A tasteless idea, I know, but it illustrates my point quite well.) Because people have survived such a nightmare, predicting the future with 100% cast iron certainty about almost anything is next to impossible.
Skydiver Survives
If we can't predict with 100% certainty the outcome of a parachute jumper whose canopy fails to open, I don't believe it's possible to predict the future movements of the markets with any greater accuracy. For this reason, it's probability that floats my boat - rather than prediction.
Tim.

 

[Splitlink]

After some thought about what keeps me afloat, albeit, somewhat waterlogged, I am likely to tell myself

"If the price reaches that level, I will do that."

So, probably "reaction" is the word to use in that case but, nevertheless, that reaction is in trying to get the trade at the best price. The "prediction" as to where the price level would, eventually, end up came before that, :smart: when deep thinking was taking place.

 

[tomorton]

Good for you Tim, straight back into the saddle!

I'm just wondering who'll be first to take the huff this week!

Watch out Jeremy Clarkson - barjon's looking more provocative than you these days!

 

[Ambrose Ackroyd]

Trade what you see ...........REACT
not what you think .............PREDICT

 

[Highfreq]

Living beings are fundamentally predictive. We are not even aware of it in most cases. We don’t need to think to predict. It takes place at all levels of consciousness meaning that it is of vital importance to us.

Each step we take during a walk involves prediction. If we miss a step, we stumble so we have to react to avoid falling. So in a sense, reacting is necessary in the case of poor predictions but it is often too late.

You might argue that predictions in trading are always poor so the only alternative is to react to price action. That would be very bad because we would always be in a state of emergency. It’s like continuously loosing our balance. Ultimately we will stumble and there will be no time to recover.

Tools can be developed to make predictions. A small margin is often enough. At least trying to make better predictions often helps us better react when needed. Better headlights help us negotiate potholes more gracefully at night.

The reality is that we always make predictions and react at the same time in trading. It’s all intertwined. Setting support and resistance levels is discretionary, and like any other thing it involves predictions. There is no doubt that being better at predicting (consciously or not) makes us better traders.

HighFreq

 

[Atilla]

Living beings are fundamentally predictive. We are not even aware of it in most cases. We don’t need to think to predict. It takes place at all levels of consciousness meaning that it is of vital importance to us.

Each step we take during a walk involves prediction. If we miss a step, we stumble so we have to react to avoid falling. So in a sense, reacting is necessary in the case of poor predictions but it is often too late.

You might argue that predictions in trading are always poor so the only alternative is to react to price action. That would be very bad because we would always be in a state of emergency. It’s like continuously loosing our balance. Ultimately we will stumble and there will be no time to recover.

Tools can be developed to make predictions. A small margin is often enough. At least trying to make better predictions often helps us better react when needed. Better headlights help us negotiate potholes more gracefully at night.

The reality is that we always make predictions and react at the same time in trading. It’s all intertwined. Setting support and resistance levels is discretionary, and like any other thing it involves predictions. There is no doubt that being better at predicting (consciously or not) makes us better traders.

HighFreq

I strongly disagree with this explanation... This is confusing the issue. Does not add clarity at all. Factually incorrect too imho.

 

[tomorton]

Better headlights help us negotiate potholes more gracefully at night.

The reality is that we always make predictions and react at the same time in trading. It’s all intertwined. Setting support and resistance levels is discretionary, and like any other thing it involves predictions. There is no doubt that being better at predicting (consciously or not) makes us better traders.

HighFreq

But don't you mean that better headlights help us REACT to potholes?

And charts help us REACT to the possibile effects of support and resistsance levels?

Surely, you can't predict there will be a pothole around this next bend. and without some historic price chart, you can't predict there will be support or resistance at any given level?

 

[Mr. Charts]

I can't add much to timsk and Ambrose's excellent posts, but success in predicting is tied up with the attraction of being right, and thus a massaging of the ego and self esteem; all emotional behaviour which has little to do with successful trading.
Trading is about being consistently profitable, not about being right. Confusing the two leads to failure.
If anything, the urge to be right in trading is self-destructive and leads to subjective decision making which guarantees losses.
The problem is that being right matters in almost every field of human endeavour, but not in trading; which is one of the main reasons why trading can be difficult to adjust to. It's simply contrary to much of our previous experience.
Emotional traders wanting to be right are simply cannon fodder.
Richard

 

[TraderPattern]

Prediction in one timeframe is reaction in another timeframe.

 

[tomorton]

Prediction in one timeframe is reaction in another timeframe.

Still don't agree. No matter how small the time frame you go down to, it's still reaction. Causes for reaction in one time frame are just noise in another time frame.

 

[Splitlink]

This is getting to be an exercise in English grammar and vocabulary.

I know what they are but I can't explain them, except that there is no reaction without a previous action, whereas prediction takes place in expectation that a certain act will take place.

Reaction is egg on your face.

Prediction is pie in the sky.

 

[wackypete2]

Trading the stock market when Bernanke speaks is a bit like walking through poison ivy...You can usually predict a bad reaction.

Peter