The Unknown Future: To Predict or Not to Predict

[firewalker 10]

Before I go off about this or that concept or idea, let's make clear first that none of this is representative of my own trading, let alone my own personal view about the market.

 

This thread is intended to discuss two fundamentally opposing views:

 

(1) The market is completely predictable and all you need to do is find the right key to decipher its language. But basically the market will do whatever it plans to do, regardless of any 'external influence' or manipulation. In other words, the path of price is laid out in advance.

 

(2) The other one is that the market is unpredictable, but not random. Randomness and unpredictability are not the same, but that's topic for another discussion. The second view is what I think most people would adhere to, and it's also what Douglas says in his "5 fundamental truths": on the one hand "anything can happen" and on the other hand "you don't need to know what's going to happen next, in order to make money of it".

 

Throughout history however, a lot of people have tried to determine what is going to happen next (rather than trade in the moment). Whether or not they were successful and to what extent, is another matter. Everybody knows that from time to time a new method or guru comes along, claiming he has found the secret to the markets.

 

Some people probably have not given the above much thought. Perhaps because they need not have to, and their trading is doing just fine.

 

The more time I studied charts, the more I observed that price moved in a very "orderly" fashion... although there are times where I have no idea what the market is going to do, I still make money by following my plan. On other times, the market acts like if it was destined to this or that. But let's not get into anything too esoteric

 

Thoughts, views, opinions,... all welcome in this thread!

[firewalker 10]

I thought about starting a Gann thread first, but I figured why not make it more general instead... There's been a lot talked and said about W.D. Gann, but reportedly he had an uncanny ability to predict the markets. To what extent any of this can be verified today, I don't know.

 

I need to be careful with copying information from a website, so please feel free to check the sources. This is an excerpt from an interview I read that Wyckoff had with Gann:

 

"One of the most astonishing calculations made by Mr. Gann was during last summer [1909] when he predicted that September Wheat would sell at $1.20. This meant that it must touch that figure before the end of the month of September. At twelve o'clock, Chicago time, on September 30th (the last day) the option was selling below $1.08, and it looked as though his prediction would not be fulfilled. Mr. Gann said, 'If it does not touch $1.20 by the close of the market it will prove that there is something wrong with my whole method of calculation. I do not care what the price is now, it must go there.' It is common history that September Wheat surprised the whole country by selling at $1.20 and no higher in the very last hour of trading, closing at that figure."

 

- Ticker and Investment Digest, Volume 5, Number 2, December, 1909, page 54.

 

Full interview can be found here: http://www.tradingfives.com/gann/wd-gann-interview-1909.htm

[firewalker 10]

Without a doubt, many people would scoff at the thought of using lunar and solar cycles in determining the future trend of the stock market (I'll admit being one of those myself)...

 

Followers of the Delta Phenomenon believe there is a "hidden" order in the markets. After all the publications one would think that order is no longer "hidden", but available in plain sight. Quote:

 

"In the early 80's, Welles Wilder founded the Delta Society International. His purpose was to share the “secret of the order behind the markets.” This order, the Delta Phenomenon, is the basis of all market movement relative to time. All other methods of technical analysis are enhanced by this timing tool. As you will learn, the Delta Phenomenon gives higher probability trading success to existing systems. Mr. Wilder states "I have solved the Delta Phenomenon for many different markets over hundreds of years of data and I have never seen a failure in this order."

[firewalker 10]

I'm sure many of us have made "calls" about the market from time to time. Some of us probably have made some astonishing calls, but - speaking partly from personal experience - having a good idea about knowing what is going to happen next does not mean you'll necessarily make a profit from it!

 

Having seen people try to pick turning points and actually being right about the reversal, but being off with the timing (and by doing so, have price go against them for several hundred points before being shown right), reminds me of the famous words of William Hamilton:

 

"Wall Street's graveyards are filled with men who were right too soon."

[Kiwi 16]

I have a third view (yes, you are not surprised )

 

The market is somewhat predictable. If certain things happen in a certain context (say a retracement after a breakout) then I predict that there is a 70% chance that it will move 10 points forward before it moves 6 points backwards - thus making a trade worthwhile.

 

I make such calls up to 10 times a day and pleasantly surprised at how often I am right. I am even right in the 30% of times I get stopped out. :smoking:

[wasp 10]

To what degree do you mean?

 

I can say GBPJPY is going to hit the 213.50 region before it will hit 209 but do you want the exact pip and/or every swing in between?

[jasont 10]

Firewalker brought my attention to this thread and asked that I post something I have put elsewhere. So here it is, just something I noticed whilst watching the rain.

 

This is going be an odd post, in fact I think it is going to sound a bit like Victor Niederhoffer.

 

I tend to enjoy watching my pool when it rains. I find it quite relaxing and was using it as the setting for some of my mental preparation today. When I began watching the rain hit my pool the drops of water were quite intense and frequent. The sky was quite dark and there was a reasonable wind hitting the water. There were no sounds of birds either.

 

As I continued to watch, I began to hear some birds in the distance, a common sign the end of the rain is nearing. Shortly after the sky began getting subtly lighter. Not enough to slap you in the face with sunshine but the darkness was lighting up. As this occurred the wind started to die down and the rain drops became lighter. Not long after the heavy rain had been reduced to a sprinkle. I noticed a few birds coming down to the ground to find worms and then the rain was gone.

 

I sat there for a while longer as the sun shone through as much as it does on a day like today. I think it was about half an hour until I realized the birds were gone again. The sun began to cloud over and the sky became subtly darker. It was at this point I thought, if I was trading rain right now, I'd bet we are going to get some more.

 

Shortly after I could see by the ripples in my pool that the wind had picked up. Then we started with a light few drops of rain and then it came down just as it had before. Again the same thing happened as it died off. I first heard the birds and then the sky lightened up etc.

 

I think from this I found it interesting that patterns form in just about everything. Many say you cannot predict the weather just as they say you cannot predict the market. I agree 100% with both of those statements. In fact I couldn't have told you how long the rain would have lasted for or how long it would be gone for.

 

However there is a big difference between predicting the weather or market and picking up on a change in pattern. As the birds had disappeared and the sky was darkening, I wasn't predicting rain, I was betting on a change in clear skies. Something which had already shown signs of occurring. So instead of predicting, the aim becomes looking for when existing things change.

 

I think this relates a lot to my own trading. The times when I make silly mistakes is when I predict the outcome rather than wait for the change in pattern. Instead of waiting for the market to give signs of turning at a support or resistance level, I occasionally make the mistake of expecting it to change at the level. It would be like saying the rain will stop in 5 minutes just as it begun instead of waiting for it to show the signs it was changing.

 

I cannot predict the weather or the market. I still believe nobody can. I can however notice when the market tells me the current pattern may be changing. Those are the trades to take, not the predictions.

 

I guess I don't believe anyone can predict the market with certainty. Just as I saw the signs of the changing weather, it didn't mean we would see the sun come out, it did mean we were seeing something happen to the existing rain. It is a hard topic to discuss though because everyone sees the market differently. The way I pick up on changes in patterns, maybe there are people out there who can say how long an existing pattern will go for. Though I am yet to personally meet someone who can do that 100% of the time.

[BigKahuna 10]

Questions like the one firewalker has posed pop up now and then on forums. You will quickly find out where someone stands by how they answer it.

 

Wasp's question is a good place to begin in unraveling the possibilities, "To what degree?" Is it fair to say you predicted the market if you are correct 70, 80,90,95 % of the time? Certainly being correct 50% would not qualify, but what does?

 

When a trader ventures into the time-price study, he is actually beginning to use more fully the information on his charts. Most will spend their trading careers only looking at price, but charts have both an x and y axis, unfortunately, those who dare venture in this direction are often ridiculed. Either they are dismissed quickly as "liar," "lunatic," or worse.

 

They say the proof is in the pudding(although the proof is in the details makes more sense). I have witnessed traders posting calls on markets that were within 2 hourly candles of being dead on the time mark and only a couple points off absolute high or low price, yet others accused them of chicanery, posting after the fact(even though time stamped), editing a post, or claiming it inaccurate.

 

So to what degree? I a couple of points off, and an hourly candle or two off accurate or not. Considering we trade markets that are human driven and in which we have to rely on the devices of inaccurate man to provide pricing, to supply fear and greed to move markets, and to act upon such to make a prediction.

 

The ability to predict must be distinguished from luck. So to what degree does one have to predict a market; time and price, before it may be considered prediction rather than luck?

 

To what degree? The most profound of the questions that need to be answered before one can get to heart of the question of possibilities.

 

fwiw,

bk

[Hlm 10]

Whenever I see questions/discussions about this topic I believe that specific definitions have to be given in order to keep everyone on the same page. What does one consider predicting to be? Are we talking about an individual trade and the probabilities associated with it or are we talking about laying out the exact highs and lows for every swing for the next day in advance? Are the predictions based off of price or momentum cycles? In a sense everyone who trades is trying to predict the outcome. However, many traders do not like to use the word "predict". If you do not believe price will go up than why would you buy? This is why I would like to see a more detailed definition to the question before responding any further.

[firewalker 10]

Whenever I see questions/discussions about this topic I believe that specific definitions have to be given in order to keep everyone on the same page. What does one consider predicting to be? Are we talking about an individual trade and the probabilities associated with it or are we talking about laying out the exact highs and lows for every swing for the next day in advance? Are the predictions based off of price or momentum cycles? In a sense everyone who trades is trying to predict the outcome. However, many traders do not like to use the word "predict". If you do not believe price will go up than why would you buy? This is why I would like to see a more detailed definition to the question before responding any further.

 

Good point. With predicting I would consider: clearly stating what the market is going to do now, or the next 5 minutes, or the next day and so on, by giving exact numbers, swings, moves,... things like that. Sort of like painting the picture of the next day's chart beforehand

[MC 10]

Whenever I see questions/discussions about this topic I believe that specific definitions have to be given in order to keep everyone on the same page. What does one consider predicting to be? Are we talking about an individual trade and the probabilities associated with it or are we talking about laying out the exact highs and lows for every swing for the next day in advance? Are the predictions based off of price or momentum cycles? In a sense everyone who trades is trying to predict the outcome. However, many traders do not like to use the word "predict". If you do not believe price will go up than why would you buy? This is why I would like to see a more detailed definition to the question before responding any further.

 

Very true, almost anyone can pick a direction correctly (though they end up making things harder than they are). And most traders with moderate screentime can even see the general S&R levels. But to expect to the tick predictions is something even pros can't provide. It's a losing concept, trying to impose your limits and expectations on millions of other market participants.

 

You might be able to park a H1 Hummer in a 1 car garage a few times but it's not worth the stress. Don't bother trying it if you like sanity and your paint job. That's what people are doing with super tight stops. If you need to run that tight a stop you're playing outside your accounts risk tolerance and/or you don't fully accept the risk of the trade. Widen the stops and park it in a 2 car garage, it's way less stressful and surely more consistant. And driving a Hummer, with the cost of gas you can't really afford to lose money on the market. :o

 

Really the main key is to go with the flow and don't try to out think the market. Add to that fully embracing the risk of each trade and you really shouldn't be stressed at all even if your stopped out.

[MC 10]

Good point. With predicting I would consider: clearly stating what the market is going to do now, or the next 5 minutes, or the next day and so on, by giving exact numbers, swings, moves,... things like that. Sort of like painting the picture of the next day's chart beforehand

 

I think that's a dangerous way of thinking about the market. We all speculate and expect to win. But it's how some handle winning and losing trades that makes the difference. We will be wrong at times, it's the nature of the beast. So to think we have super human prediction powers is too cocky for my liking and would lead to stress and emotional trading IMO.

 

In a simmilar thought, most any WRB seems at least partially driven by a squeeze of those on the wrong side of the market. There's always people on the wrong side of the market and their pain tolerance is probably defined by the balancing periods price range. I do realize they use WRB to blast through supply zones quickly and am thinking the squeeze adds to the effect. Any thoughts on this theory?

[Hlm 10]

Just some thought provoking questions to get this conversation going...

 

clearly stating what the market is going to do now...

Well, I predict that the market is going to go up at least x amount of points so I will buy here. In other words, explain a situation where the trader is doing no prediction whatsoever.

 

But to expect to the tick predictions is something even pros can't provide. It's a losing concept, trying to impose your limits and expectations on millions of other market participants.

So you define predicting the market as picking the top/bottom of the move by a few ticks? Or is it based more of a percentage of error?

 

Really the main key is to go with the flow and don't try to out think the market. Add to that fully embracing the risk of each trade and you really shouldn't be stressed at all even if your stopped out.

Are you not predicting that the "flow" will continue for at least a desired amount?

 

We will be wrong at times...

Yes, of course...this is what stops are for.

 

So to think we have super human prediction powers is too cocky for my liking and would lead to stress and emotional trading IMO.

So are you saying that it's not impossible, but not practical or worthwhile for the majority of traders?

 

-------------------

 

So in other words, you all perceive prediction as picking tops and bottoms to a pretty accurate measurement based off of price. Would this be a correct statement?

[MC 10]

So are you saying that it's not impossible, but not practical or worthwhile for the majority of traders?

 

-------------------

 

So in other words, you all perceive prediction as picking tops and bottoms to a pretty accurate measurement based off of price. Would this be a correct statement?

 

I'm saying it's possible but it's nothing but luck if someone predicts to the tick a high or low. It's not a consistantly repeatable, bankable feat. IMO one should acknowledge what they DON'T know above all else.

 

I think a directional bias with realistic stops is practical. I would define a realistic stop as one just outside the balancing range to allow for testing of the extremes. If you can't afford that level of stop you're not being realistic IMO.

 

I'll be honest, I don't even remember how I answered the poll. :o

 

Edit---

I picked number 2.

[Hlm 10]

...but it's nothing but luck if someone predicts to the tick a high or low. It's not a consistantly repeatable, bankable feat. IMO one should acknowledge what they DON'T know above all else.

So your definition of predicting the market is hitting a high or low to the tick (predicting both the up AND down move)? So a trader saying that there is an extremely high probability that price will move up x points and then the uncertainty goes way up would not be predicting. Would you say that the following statement is an incorrect use of the word "predict"...

 

"I predict that the market will go up AT LEAST 5 points, therefore I will buy here and sell 5 points higher."

 

As you can see, I am not picking a top. I am not predicting a reversal. I am just predicting that price will go up a certain amount. In other words, is the argument more about trying to pick tops and bottom versus using the word "predict"?

[MC 10]

So your definition of predicting the market is hitting a high or low to the tick (predicting both the up AND down move)? So a trader saying that there is an extremely high probability that price will move up x points and then the uncertainty goes way up would not be predicting. Would you say that the following statement is an incorrect use of the word "predict"...

 

"I predict that the market will go up AT LEAST 5 points, therefore I will buy here and sell 5 points higher."

 

As you can see, I am not picking a top. I am not predicting a reversal. I am just predicting that price will go up a certain amount. In other words, is the argument more about trying to pick tops and bottom versus using the word "predict"?

 

I'm going to bow out of the discussion. I'm expending too many of my limited braincells. :o

[Hlm 10]

I'm going to bow out of the discussion. I'm expending too many of my limited braincells. :o

LOL...I wasn't trying to be tricky or anything. I have just seen this topic get messy because of people having different definitions. Hopefully a few more people will jump in here and you can jump back in and comment some more.

[james_gsx 16]

I voted Yes, all is known in advance.

 

That doesn't mean anyone knows what it is, or that it's unpredictable. And I think it's that reason that people think it is predictable, that leads them to losing money and searching for the holy grail. At the end of the day, I really don't care. If I make good trades and make money, the market can do whatever it wants. If the market wants to explode, chances are one of my signals will pop up before it does, and vice versa. It's just a matter of if I see the signal and take the trade.

 

I guess you could say I'm kind of in between the two descriptions, but I picked the first one because more people had already clicked that one

[jasont 10]

Prediction Definition: The act of foretelling; also, that which is foretold; prophecy.

 

From the above dictionary meaning, prediction states that you would say what is going to happen and that which you said must become true. If that is the case then those who predict would never sustain a loss. In fact they would be on the right side of the market every time. They wouldn't take a long position if the market was to go lower.

 

I will admit that sometimes I have a strong feeling the market will do X over the Y period of time and possibly turn at Z. However I don't think those are based as much upon future predictions as they are past patterns. Spending thousands of hours watching charts you begin to pick up on certain ways the market trades. Yet how can I have those strong feelings when I believe the market trades differently every day and is why I enjoy it?

 

I get the feeling this thread has turned from "who believes that market can be predicted?" to "what does predicting the market mean?"

[james_gsx 16]

If I feel I have predicted the market and I get excited over what I think will be an awesome trade. I'm wrong 99% of the time and I feel like an ass.

[Bearbull 10]

PURE WYCKOFF: Learn to aniticipate THE IMMEDIATE FUTURE with the info. in front (within the context of previous price action (NOT PREDICT), this then allows room for adopting a flexible mindset, ability to discern changes in supply/demand pressure on an ongoing basis and go from a bullish to bearish & vice versa , stance without hesitation.

[firewalker 10]

Interesting debate going on, but I'd hate to dwell on semantics too long. Although it's indeed necessary to clear the air to know for sure what we are talking about. So I'm going to try and be more specific about this. When you choose option (1), you are basically saying that now, in the present, the future course and path of the market has already been determined beforehand. Whatever happens next, whatever news comes out, whatever happens to the state of the economy or business conditions, it's all irrelevant because the market has "a plan" and it will not deviate from that.

 

Very true, almost anyone can pick a direction correctly (though they end up making things harder than they are).

 

Picking direction is easy. I said about a month ago that the market would turn very soon and head towards the March lows, which it did. But that's easy. Giving exact times and dates and exact price levels, that's a different feat and something I have not yet seen a lot of people, except on occasion. Making one bet is easy, but doing this continuously is a different thing.

 

Hlm, have you read the interview with Gann? That's the sort of predicting I'm talking about.

 

You might be able to park a H1 Hummer in a 1 car garage a few times but it's not worth the stress. Don't bother trying it if you like sanity and your paint job. That's what people are doing with super tight stops. If you need to run that tight a stop you're playing outside your accounts risk tolerance and/or you don't fully accept the risk of the trade. Widen the stops and park it in a 2 car garage, it's way less stressful and surely more consistant.

 

Have to disagree here, if you get the entry right, you can have a very tight stop. My stop is about 10 points on the YM and 2 points on the NQ. If I get stopped out, price almost always continues in the opposite direction, so I was wrong (but the stop was right).

 

Well, I predict that the market is going to go up at least x amount of points so I will buy here. In other words, explain a situation where the trader is doing no prediction whatsoever.

 

Perhaps adding the 'time factor' would make the prediction a lot more interesting. It's not that difficult to see that price is often attracted my S/R levels, so if you're saying "price will continue in that direction up till point x", than you might have a very high probability of knowing so, but can you determine how long it will take, how price will react when it gets there, and can you draw the course of price along the way?

 

I'm saying it's possible but it's nothing but luck if someone predicts to the tick a high or low. It's not a consistantly repeatable, bankable feat. IMO one should acknowledge what they DON'T know above all else.

 

Doing it one time might be luck, but what if someone managed to do it each and every day?

 

I voted Yes, all is known in advance.

 

That doesn't mean anyone knows what it is, or that it's unpredictable. And I think it's that reason that people think it is predictable, that leads them to losing money and searching for the holy grail. At the end of the day, I really don't care. If I make good trades and make money, the market can do whatever it wants. If the market wants to explode, chances are one of my signals will pop up before it does, and vice versa. It's just a matter of if I see the signal and take the trade.

 

I don't care much neither, but I still think it's an interesting topic worth exploring. Albeit perhaps from a more philosophical point of view, than a pure "how to make profit in trading" pov.

 

I get the feeling this thread has turned from "who believes that market can be predicted?" to "what does predicting the market mean?"

 

Indeed. I hope with now that I've added the time element this will help in determining exactly what predicting is.

 

PURE WYCKOFF: Learn to anticipate THE IMMEDIATE FUTURE with the info. in front (within the context of previous price action (NOT PREDICT),

 

Bearbull, I'm actually more biased towards that kind of belief. I'd like to make that clear because it's not because I started this thread that I have some sort of fixed opinion on any of this. I'm open to suggestions

[MC 10]

Have to disagree here, if you get the entry right, you can have a very tight stop. My stop is about 10 points on the YM and 2 points on the NQ. If I get stopped out, price almost always continues in the opposite direction, so I was wrong (but the stop was right).

 

Doing it one time might be luck, but what if someone managed to do it each and every day?

 

Responding to the 2 replies to my quotes...

 

10 YM points I would consider a realistic stop in the context of being placed outside a balancing period. When I say tight stop, I'm referring to the people that will get long at a test of the 50ma and have a 3 point stop. That kind of thing, which I've tried myself early on before I saw S&R in the right light. :crap:

 

Now that I'm given your criteria for stops, and with my addition that one must understand how the market moves and balances. Assuming one has tuned their psych properly I would say YES the market can be very VERY predictable.

 

Realizations I've come to, though I am still developing the psych to exploit my knowledge.

1) Big money runs the show, follow their lead. You will profit by trading with them, not against them.

2) The market moves on trending and balancing periods. Prey on the trending periods since they are fueled by emotions. Use the balancing periods to watch what's unfolding or to get an entry near the congestion lows in the direction of the prior direction (assuming there's been no trend changing professional activity).

[LiggerPig 10]

If you believe the market can be predicted you have an incentive to learn how to predict where and when the market will move to.

That incentive can be an excellent motivation for traders, or alternatively, could be a destructive journey into randomness.

Personally, I've found the effort to learn to predict market moves very rewarding. It gives you a sense of being at one with your market, of being in control and understanding it's needs.

 

To be of use to you as a trader your method of prediction needs to be reliable, consistently profitable and enhance your performance. Your risk management must work with your method to tell you when you are wrong. This is extremely important.

It's all too easy to become over-confident having the market perform twists and turns at your every command but a momentary lapse, a short period of defiance, a bad mood swing, etc. can see you part ways very quickly.

 

When we predict the future we are essentially looking for history to repeat. We need to be aware that history is repeating on many different levels. These are viewed most easily as different timeframes. If we consider the complex nature of interrelated markets and the different timeframes, it becomes clear that history won't repeat exactly.

The best we can expect is a close approximation to our prediction.

 

To be effective, I believe it worthwhile to predict the path taken to the next target. Think of the waypoints along the path that will confirm your prediction is valid. You may have one, two or maybe more different predicted paths to the next waypoint.

We should always allow for the market to vary it's path to the next waypoint. This is best realised by remembering that we are in the game to make a profit. By dropping our arrogance, our need to be right, we use stops to indicate our preferred paths are straight, or slightly curved. Our paths have to be paved with riches, we can't take huge detours. Our waypoints are entries and exits which confirm our predictions.

By predicting the path(s) we have a regular assessment of our performance en route to the next target.

 

It's not essential for us to travel each path, in fact it's preferable to avoid many. Experience tells us where predictions are easier and which paths carry the biggest riches.

As traders we needn't be too hung up about whether the markets move to a pre-determined plan; our goal is to profit financially regardless.

[ammo 10]

the market is like a staircase,you can go up or down or both,the trendlines,market profile value areas,gann lines,previous hi or lo,low/high of day/there are a dozen more,if you learn how to use any 2 of em ,you have a good idea where the height or depth of the next stair tread will be,that is the easy part, the hard part is pulling the trigger,setting and taking a stop,getiing out near the next step or too early,watching it go halfway to the step and coming back and turning a profit into a scratch or loss,this discussion on prediction and who can be the closest has very little to do with trading or making money,professional traders have no clue where the mrkt is going they just react l