Well, been thinking for a while, and I'm honestly stumped

I have moved to try to become a trend trader over the course of 3 months. Following strategies posted on some of the more popular threads here…

But there’s this one rhetoric that still stumps me!
“Stop predicting the market!”

Okay…so if I don’t predict the market then how am I supposed to know what direction of trade should I be taking? I mean, if we don’t take an exposure to certain currencies profit is impossible, but once you take an exposure you are already trying to predict!!!

For example , when I trend trade, I’m expecting the trend to continue, isn’t it also a prediction and therefore, bad strategy?

confused :frowning:

Or is this some philosopher’s nonsense? :stuck_out_tongue:

I think you should obviously try to predict the trend but you wont and there is no secure way to go ahead and be 100% correct about a trend direction, I mean you need to use your own system to try to be wrong as few times as possible, but for sure you need to predict the market to see profit, speculation is the name of the game. Everything you can learn in here are just a couple tools to help you lose fewer times.

You can’t know the future ahead of time. To do that would require a time machine or a crystal ball… (can’t help you there. Mine has a crack in it) So all you can do is make an educated guess and try to find something that happens more often than not. So would you call that predicting? Or would you call it estimating the highest probability? If you are trend trading then your expectation is that price is more likely to continue in that direction than not. So you would trade in that prevailing direction. You may or may not get it right. The only thing that is certain is uncertainty.

Graviton suggest you think out a story for your trade before you enter. If price action doesn’t move according to your story, you get out.

That idea has transformed my trading, more so than anything else over the last few months.

You have to predict a price move, otherwise why would you enter? You are expecting price to move in your favour. You should have good reasons for that expectation.

I have actually tried to take predicting the future out of my strategy. I have been using pivot points for entering/exiting trades and the most difficult thing at times is predicting where the price will go at the pivots. So now sometimes at those points of indecision I just use pending orders on either side at a point where the price is most likely going between lines. Predicting Forex can be maddening so I am just trying to have a plan for whichever way it goes. It is a proactive plan with reactive execution.

Whew, thanks guys. I knew that was rhetoric nonsense :rolleyes:

Though I would guess, the closest to not needing to ‘predict’ the merket is that you do not have to predict the direction, like how romad places entry on both sides. But then, you are predicting magnitude, so prediction is still there :stuck_out_tongue:

I can give an answer that works for me, but I can’t guarantee it will work for anyone else.

As NB noted, I like my trades to have a story behind them, like their will be optimism as a new PM takes office in Jolly Ole England, or The Ausies will sell raw materials to China, just as China sells products to the US. As long as the trade follows my story I stay in it and when it doesn’t, I get out and look for another good story. Of course, the heart of this system is a prediction to start with.

So every trade I enter is a prediction of the trend. Even if I’m range trading, say from Bollinger band to Bollinger band, I’m still predicting that price will continue between bands and not go half way and sharply reverse. I am prepared to exit quickly if price reverses, but I am predicting that it wont.

When I enter a trade, I want as many things on my side as possible. Say I’m trading the 4 hour chart, my favorite. Before I enter, I will look at a dozen things and I will take a trade where several things seem to be working on my side. This is all about trying to find a direction that has some small increase in probability over random chance of continuing for a short time after entry. So what I am really doing is predicting the direction price will take immediately after I enter.

Everyone has their favorite candle formations, indicators, S/R and pivot points, moving averages, trend lines and other strategies. Additionally I will look at some fundamental data before I make a decision. I wouldn’t plan on going long right now on the Euro, simply because it doesn’t agree with my belief about the fundamentals driving the trend in that currency. But, I realize that price can do anything, so every trade is a balance between having the courage of my convictions and considering the opposite case, or more specifically, what the other trader who is taking the opposite side of the trade is thinking. Often that trader is one of the worlds best working the desk at Goldman Sachs, or a central bank with inside information, so I consider their opinion very carefully. If I don’t understand why the trader on the other side of the trade is taking the trade, I study some more.

I do have a set of hard and fast rules, like I only trade in the direction of the trend of the time frame one above my home chart, and I only trade in the direction that the fast over slow Stoch is pointing two time frames below my home chart, and a few others. I also always look for direct price action that confirms my belief about price just a moment before entry. If price doesn’t confirm, I just wait until it does. Sometimes my rules might give me a slight edge on entry, but I realize that edge is likely small. As long as I can be successful more than 50%, I have a chance. But for me at least, that absolutely requires some prediction to be made.

If I do everything perfectly, maybe I can get entries that go in the predicted direction 60% or more of the time. I understand I will take many small losses when price goes against me, and my goal is to keep those losses absolutely as small as possible. I quickly manually exit if price goes immediately against me on entry to a trade, usually holding my entry loss to only a few pips plus spread. If the trade immediately goes in my favor, I consider it a good entry by my definition and I move on to completely separate set of rules to manage the trade. At that point, the prediction is made and was confirmed by price action just after entry so I’m no longer in the business of prediction of price direction.

Perhaps that is what you have heard. Once you have entered a trade, you no longer predict price direction. Right or wrong, you have already made your prediction and at that point you can only manage the trade to maximize profit and minimize any possibility of loss. I agree with that philosophy. I realize that even after I’ve found what I consider to be a good entry, about half the time I’ll have to exit with only a very few pips profit to prevent a winner from turning into a loser. From there on out, the profit I make is just a statistical distribution based on market forces that I have no control over.

My personal trend following method takes advantage of the “fat tail” of real world price movement distributions and “Black Swan” events. As long as the trend continues, as defined by an up trend makes higher lows or a down trend makes lower highs, I stay in it. I search for that few percent of trend moves that persist longer than a perfect normal distribution math model would predict to exist. I also take advantage of “Black Swan” events when they occur in my favor. Those events should only be in my favor 50% of the time, but careful studies have revealed that in a down trend, the market will shrug off good news and react sharply to bad news. This is probably more due to the psychology of traders than actual market forces, but then again, group psychology is a market force.

In any case, once I have made an entry, I do not try to predict price at all, I just react to price movements. I do that with pending conditional orders that will either increase my position if price continues in my direction, or take me out of the trade with maximum profit if price moves against me.

There are traders that say that if you do all the other things right, you can just flip a coin to determine entry direction and still make about the same profit. I haven’t heard of many people getting rich flipping a coin, so I can’t recommend that strategy. Every successful trader I know works very hard to put themselves into a position to win, and it’s only after the fact that it looks like luck. If there is such a thing as luck, it seems to be on the side of those who work the hardest to put themselves in a position to win. Of course, that’s just my own opinion.

Happy Trading

Good post Graviton, but are you really predicting?

I don’t think so.

We are playing odds here.

You have stacked the odds with as many favorable variables as possible. Not only have you done that, you’ve got your risk management in line as well.

Prediction is more a deal of having NO reason to open a trade other than thinking it’s gone down long enough, it’s got to be time to go up.

Physics don’t rule in the markets. You don’t need an equal and opposite reaction for every action.

Price will go down tomorrow, and it will go up tomorrow. Will it go down more than it goes up? Or will it go up more than it will go down?

It’s a simple game best played with what you see in front of you.

I remember right before the Thanksgiving holiday, I was watching TV, and one of the currency hotshots said “buy the euro!”

That was the day Dubai defaulted, and the world has been caving in for the euro ever since.

That was a prediction;)

You are right about that which is why I make my daily target as conservative as possible. Not trying to make 100s of pips a day just 10 so the magnitude of the movement should be sufficient, I hope:rolleyes:

LOL, yes, I’m just predicting price will go in the most probable direction, most of the time.

The key of success is probability. You can have 0% until 100% probability with a trade, but a 0% probability has a high proabability and a 100% probability has very very low probability. Realistic probabilities are maybe 5 to 95% depending on what system you are using. The higher the probability is, the fewer trades you will find. Maybe there is a 100% probability, but that is so rare to find, almost nobody found it yet.

Nobody knows for sure the future. Nobody! If analysts and market gurus would know it, they would not have to analyze, because they would sit all day long at the beach and drink ****tails or whatever they prefer.

Trend related: Trends start and they end. Try to find an entry method with higher probability than 55% or so that the trend will continue until your profit target. The key to success here is to find the right time to enter. The early bird usually catches the worm. Because if others see it too, they jump on the bandwagon and push the trend in the direction. It’s just to fiddle out not to be too early. Then it might come out that this not even was a new trend, but just a too short breakout of the ongoing old trend.

The stars in c-o-c-ktails are automatic. Interesting. :smiley: