True, but that's not what is meant by "predicting the market" in this context.
To be specific, successful traders don't let 'look-ahead bias' creep into their decision-making, they look only at what the market is doing now and let the market decide the outcome of any trade based on the rules of their system.
Look-ahead bias is what blows up trading accounts.
um I think they have already looked ahead (hopefully they have) in designing their system and it’s rules.
May wanna write this down. It is Ok to look at PRESENT market action in decision making and it is ok to look AHEAD in anticipation of what will likely happen IF you are looking BEHIND at what HAS happened. It is called extrapolating Present and Behind into the unknown future based on probabilities extracted from observing past PA.
Def from vocabulary.com
“The verb
extrapolate can mean "to predict future outcomes based on known facts." For example, looking at your current grade report for math and how you are doing in class now, you could extrapolate that you'll likely earn a solid B for the year. Another meaning of
extrapolate is "estimate the value of." You could extrapolate how much your antique watch is worth by finding how much similar watches sold for at recent auctions.”
In trading this sort of thing is done when a trader shorts at the top of a range and goes long at the bottom of a range as opposed to going long at the top of a range and shorting at the bottom. He is simply extrapolating from past and present PA in ranges and looking forward and placing bets on the likely outcome. Most (and it is a high percentage) BO attempts of the top or the bottom of a range fail. Eventually one will succeed but until it does decision making can be facilitated by extrapolation. One is not completely “shooting in the dark” so to speak.
We extrapolate a trend will continue (at least for some time) based upon PA in previous trends. Markets generally have inertia and we place bets upon that
principle when we trade trends. In a bullish trend to be clear there are both bullish and bearish pressures at work. These pressures create the inertia. The graphical view of those pressures at work is recorded by the chart. The inertia is extrapolated into a sort of look-ahead bias that begs to have bets placed as long and not short. Traders lose over and over placing bets against inertia thinking the trend has to stop and a reversal has to be forthcoming and imminent. Remember, the chart will record when a major reversal happens and not just a minor reversal in the form of a pullback. Until then the trend is intact, the pressures are bullish, the inertia is upwards and the best bets are LONG.
Strategies fail when context in which the setups for the strategy change. Setups should be designed for strategies within context and not context free. Bear channels in a smaller TF are really just bull flags in a larger TF with a probable eventual SUCCESSFUL BO direction being north. SO A TRADER just keeps shorting at the top of a bear channel because the inertia is down in the channel. The pressure is down. That is what the chart is recording. When he looks at a larger TF he sees a bullish trend that has a flag forming (this flag IS the bear channel on the smaller time frame). What does all this tell him? Well it should indicate to him the context is bullish and that the bear channel is really a bull flag and bull flags usually resolve in a continuation of the bull trend. So he is expecting a bullish BO of the bear channel to take place. But he knows that as the flag is forming in the smaller TF that the strategy to use and the setups to employ that will give the best odds are bearish ones. So he shorts and shorts the bear channel at the top over and over until there is a bullish successful BO then he reverses his direction and employs long strategies and setups.
If he gets caught short when the successful BO of the smaller TF bear channel occurs he exits with a loss, doubles or triples up in the opposite direction of the larger inertia TF and presto he soon has recovered his loss and back in profit quicker than a lizard’s tongue after a mosquitoe. He has capitalized on bearish inertia in the channel AND on bullish inertia on the larger TF flag.
Source: animals.mom.me “While
lizards are primarily diurnal, and
do not consume many
mosquitoes, they will capture them opportunistically. Frogs and toads are more often nocturnal or crepuscular and certainly consume
mosquitoes; however,
mosquitoes probably
donot make up a significant portion of their diets.”
context...context...context very important in extrapolation and any forward looking bias development and the placing of bets in strategies using specific setups. The same entry setup in a different context will usually render different results. But we know this right? If we don’t know it analytically we know it experientially. ¿Correcto?
