Predicting the Future: Made Simple

I would like to take a few minutes to explain what I believe is a massive misconception about profitable trading amongst new traders, and even some seasoned traders.

If you are to be profitable, you have to able to predict the future to SOME degree. This is a scary and daunting task to anyone, but if you think about it, you will need to predict a price movement before it happens in order to make money on ANY trade!

What makes this seem impossible to many traders is their definition of predicting the future. To too many traders, the definition of this is to know where price will move at any given time with 100% certainty. To know this, you would have to know the future actions of every trader in the market up until the point that you closed your trade. This is of course impossible and if you think of it like that, you will have a hard time mustering up the confidence to enter the many trades needed to hone your trading skills.

Here is my own, much more palatable definition of “predicting the future”:

To know what SOME of the traders will do MOST of the time.

Every price movement is based on the action of a trader or group of traders, and every action of a trader is based on how they are perceiving the market.
As an example, some fraction of the market participants are watching support and resistance levels. And some fraction of the traders watching these levels intend on trading a bounce off this level, and another fraction intend on trading a break of this level.

The proof lies in the charts. You can see traders acting out their intentions when price bounces off a resistance level, or when price breaks through a support level.

The other half of the challenge is figuring out what those fractions are. This is where the experience and knowledge of fundamental factors comes in, which is why what I’m proposing is by no means a shortcut to success! Over time you get better at guessing what fraction of the market is willing to act out their trading intentions. The larger the fraction, the more likely their actions will follow through, leading to larger price movements and more pips in your pocket.

I would like to point out Nick B’s trading method as a perfect example of this. He trades with a consistent group of people that act out their belief that price will breakout from a support/resistance level and by keeping his targets modest, he profits from that predictable group of traders. His experience allows him to have a very good idea of what fraction of the market will trade the break along with him. When he believes the fraction is large, he will take the trade and most of the times reaches his target. Over time, with consistent adherence to this one simple event, he has amassed a large trading account.

Now you can do this too, and it doesn’t have to be about trading breakouts. It can be done by following any group of traders that act out their trading intentions on a consistent basis. Some examples might be pivot points, fibonacci levels, or some other aspect of support and resistance levels. The key is to latch on to an idea that a significant fraction of the market is willing to trade. This takes research and then experience with your chosen technique.

I really hope this helps some new traders. It can simplify the trading process, which will lead to better consistency on your part, which will lead to consistent profits, assuming your chosen technique is a “valid” one. This is just one piece of the puzzle. Observation of market news events, money management, and many other trading skills are involved, but I truly believe this is the “meat and potatos” of the whole trading ordeal.

Thanks for reading!