peterpr
Established member
- Messages
- 609
- Likes
- 7
Aside from discussion of the complexity and possible accuracy of scientific prediction methods which is fascinating stuff, my personal experience of the thread title -"The perils of Prediction" goes something like this:
Whilst not actually trading (ie sitting at a screen with charts and trading platform loaded and looking to initiate/close trades) I research the markets I am interested in. That research involves TA and some back-testing but includes a host of factors not immediately associated with markets at all but which I judge to influence them. The knowledge thus gleaned makes me incline to a view about the direction the market is going to take over the next whatever period. It sets the scene, so to speak. My biggest problem is in clearing my mind of any such view when I am actually trading. So why bother researching at all I ask myself? and I am not entirely confident in the answer. At best it provides me with insight into what other market participants are thinking and the possible events (price levels) that will move them to action. I now try to distill that view into one or two simple rules for each trading day - such as "I will not initiate a long position today" or whatever and clear my conscious mind of any opinion about market direction at all so I can focus on pure price action. One thing that has impressed itself forcefully on me to the tune of more financial loss than I care to dwell upon, is that any tendency to hold onto a trade whilst it moves beyond a preset amount against me, just because it happens to accord with my research view, must be recognised and repudiated in short order. My second most important rule is never to confuse trading timeframes. An intra-day trade is an intra-day trade. A swing trade is a swing trade and a position trade is a position trade. It's far too easy to slip into rationalising one into another as part of the 'my research opinion is right' syndrome already described.
Whilst not actually trading (ie sitting at a screen with charts and trading platform loaded and looking to initiate/close trades) I research the markets I am interested in. That research involves TA and some back-testing but includes a host of factors not immediately associated with markets at all but which I judge to influence them. The knowledge thus gleaned makes me incline to a view about the direction the market is going to take over the next whatever period. It sets the scene, so to speak. My biggest problem is in clearing my mind of any such view when I am actually trading. So why bother researching at all I ask myself? and I am not entirely confident in the answer. At best it provides me with insight into what other market participants are thinking and the possible events (price levels) that will move them to action. I now try to distill that view into one or two simple rules for each trading day - such as "I will not initiate a long position today" or whatever and clear my conscious mind of any opinion about market direction at all so I can focus on pure price action. One thing that has impressed itself forcefully on me to the tune of more financial loss than I care to dwell upon, is that any tendency to hold onto a trade whilst it moves beyond a preset amount against me, just because it happens to accord with my research view, must be recognised and repudiated in short order. My second most important rule is never to confuse trading timeframes. An intra-day trade is an intra-day trade. A swing trade is a swing trade and a position trade is a position trade. It's far too easy to slip into rationalising one into another as part of the 'my research opinion is right' syndrome already described.
barjon
Legendary member
- Messages
- 10,752
- Likes
- 1,863
TheBramble said:
Tony,
Isn't "the statistical probability of X following Y"... just a rationalised prediction
I think the difference is probably ego-emotional. A prediction carries the connotation of being right or wrong, a trade doesn't recognise right or wrong - only what happens.
Which is basically what you said I suppose
That said, Peter raises an interesting point about setting the scene. Some of my worst clangers have come when I have traded against the market (eg: long on a stock when the market's falling) so I try to be "with the market". That means I have to take some view on the market overall and - whatever means is used - that view could be argued as just a posh way of saying "prediction".
good trading
jon
barjon said:Tony,
Isn't "the statistical probability of X following Y"... just a rationalised prediction
I think the difference is probably ego-emotional. A prediction carries the connotation of being right or wrong, a trade doesn't recognise right or wrong - only what happens.
Which is basically what you said I suppose
That said, Peter raises an interesting point about setting the scene. Some of my worst clangers have come when I have traded against the market (eg: long on a stock when the market's falling) so I try to be "with the market". That means I have to take some view on the market overall and - whatever means is used - that view could be argued as just a posh way of saying "prediction".
good trading
jon
Isn't this all a bit semantics and naval gazing.
Ultimately a prediction is just a forecast. This could be based on a single criterion or a permutation of criteria. The assumption used in this thread, in relation to the term 'prediction', is that it is irrational i.e. unscientific, unstatistical, divorced from price action etc etc.
The term 'trade' has been defined by some as "if the market does X then I will do Y". Even this is ultimately based upon an assumptive prediction since it implies that their is some kind of causal consequence that Y is a sensible or logical dynamic response to X. In order to come to the conclusion that Y is a sensible or logical dynamic response to X you must have an established criterion that leads you to this conclusion. That 'established criterion' must consist of precedents, technical analysis, fundamental analysis or whatever other signals or indicators you have adopted (which could even include the flipping of the proverbial coin) that gives you sound reason to believe that Y makes sense as a response to X and has a high degree of probability to result in a profitable transaction if you follow that sequence.
Trading 'with the market' also incorporates some degree of recognition by you of what the market has done up to now and then interpretation of what that means to you in terms of what it will go on to do in the next minute, hour, day etc.
Timing is also a relative factor. If my critria says that if the Dow hits 11000 I will go short then the successful outcome of that trade could be determined by the timing of my short trade, the length of my stop or some random event that changes the market characteristics at that moment or in 15 minutes time.
Intelligent and rational people seek to optimize the odds in their favour by filtering appropriate information to enable them to come to logical conclusions in order to make more effective decisions. However the effectiveness of any syllogistic approach is always dependant the validity of the premises employed and when this is applied to a futuristic environment there are various irrational and unpredictable factors that could apply which cannot be taken into account in advance (eg. 9/11)
The issue ultimately revolves around the extent to which you can divorce ego or emotion from the decision making process. This is only a question of degree since as humans we are incapable to totally eliminating these characteristics. It is really the case of extremes, ranging from someone who clinically uses predetermined criteria at one extreme to the inveterate gambler who makes decisions on a whim at the other. The most extreme clinical examples would be programming a computer to trade for you or blindly following instructions issued by a third party . Even these are not completely divorced from ego or emotion since you have to have some confidence or belief in the expertise of the software or the third party. This is what drives modern risk management theories.
Someone once said that nothing in life is certain other than death or taxes and this is probably a truism that is applicable to everything including trading. There is no Holy Grail, just developed clinical expertise that should give you an edge over others who have either less or no developed clinical exterise.
TheBramble
Legendary member
- Messages
- 8,394
- Likes
- 1,170
A 'rationalised prediction'? -ish I suppose.barjon said:Tony,
Isn't "the statistical probability of X following Y"... just a rationalised prediction
I feel the nub of my thrust (ooo missus!) was the if-X-then-A else if-Y-then-B etc construct. This builds in the aspect of responsiveness to the reality as it unfolds and adapting our view based upon what IS happening - rather than making a resolute and fixed attempt at 100% definition/description of what-will-definitely-happen.
A rationalised and variable prediction using NOW as a prime determinant for a scenario we currently hold as having the highest probability of occurring.
barjon said:oooh, careful Tony - I can feel Kriesau's finger twitching :cheesy:
As he says, it's all about suspending your emotion (whilst praying that others give in to theirs
good trading
jon
My finger doesn't twitch - unless I'm looking to closeout a profitable trade :cheesy:
Unlike some, I don't try and impose my views on anybody or tell them there wrong or incorrect.
You can take some, all or none of my views on board -it's entirely optional
I think you've hit the nail on the head several times there Tony, going back to #97. Very succinct if I may say so.
I'd like to close out the linear/non-linear side with a point ... I was 'talking maths' here, functions aren't something you have an opinion about, they're something that will produce an output with known characteristics, and this type of function produces large variations in output for tiny changes in input.
Linear or non-linear isn't something you decide to call something or vote on, the terms have specific meanings.That isn't my opinion, it's maths.... It seemed fair to mention this chaos stuff, so anyone trying to calculate the killer program that charts the Dow a week in advance of reality would appreciate what they were up against if they chose to accept the pointer that similarly chaotic systems provide. I doubt anybody else is interested, so I'll shut up about it, starting....now <g>
Naturally that's ALL I'll shut up about... nice to see other issues cropping up and being argued over - it's a wide field with plenty to go at!
Dave
I'd like to close out the linear/non-linear side with a point ... I was 'talking maths' here, functions aren't something you have an opinion about, they're something that will produce an output with known characteristics, and this type of function produces large variations in output for tiny changes in input.
Linear or non-linear isn't something you decide to call something or vote on, the terms have specific meanings.That isn't my opinion, it's maths.... It seemed fair to mention this chaos stuff, so anyone trying to calculate the killer program that charts the Dow a week in advance of reality would appreciate what they were up against if they chose to accept the pointer that similarly chaotic systems provide. I doubt anybody else is interested, so I'll shut up about it, starting....now <g>
Naturally that's ALL I'll shut up about... nice to see other issues cropping up and being argued over - it's a wide field with plenty to go at!
Dave
