Quote from QQQShort:
As you noted, there is a subtle -- but important -- difference between prediction and probability. Understanding this difference helps to develop systems and follow one's rules.
It's clear that people mean different things when they say "prediction", so there's a lot of talking past each other in this thread.
If I may be so bold:
Just for the sake of discussion, in this post I use
prediction to mean "any statement about the future that involves uncertainty". You don't have to agree with that definition, just understand that's what it means in this post. So if I say "the sun will rise tomorrow", to some of you that may be a prediction but here it isn't because the uncertainty is completely negligible.
Because uncertainty is involved in all predictions, we can then consider whether the prediction is
likely (probability is >50%) or
unlikely ( <50%). I think that's where much of the disagreement in this thread comes from. Making a trade in the direction price is already going (trend following) is much more probable than trying to pick tops and bottoms ("be a hero"). Both involve uncertainty but one is less uncertain (more probable) than the other.
Most trend-following trades start out in the right direction (accurate prediction), but most of the losing trades come from not being able to get out before the
unpredicted reversal (plus commissions) eats up the trade gain.
Given the fascination with prediction, I wonder how many of these fascinated traders actually know the probability of their system's predictions. I don't mean overall winning and losing trades per se, just the probability of actually being right on those system components which involve prediction. I'm not saying that information is undoubtedly useful, but it might be for the individual trader.
