Physics Vs Prediction in Trading

[Simples]

I think we're getting a bit too much into the weeds here. So let's just agree that we define "prediction" differently. There are some people who think they can predict a move before it begins, and predict how far it will go (and when!). To me, that's full on prediction. I don't buy into it. I personally regard reacting to the market's activity as a distant cousin, at best, to any notions of "prediction." Beyond that we find ourselves in the realm of semantics.

Completely agree 100%. If what you mean by prediction is how far and how long and how volatile and.. and.. and (how many dimensions can you pack into this baby!), in advance, yes, that's a path to failure.

So you really want to minimize prediction, but.. At the same time, the exact same qualities, can be used to adapt.

I also think the differences in opinion here is semantic, and am glad you brought it up, and fully respect that notion.

 

[Handle123]

10% a month? how many top guns out there on retail and institutional level gain 10% a month each single month.

Anyone giving 2% a month, year after year is in the top 1% of traders.

Also, price patterns "are" predictable and you have to be able to predict when a pattern will work and when it will fail.

This ability and inability is "one of the several tough factors" which make trading the most difficult business out there.

I agree, but for different reasons of nailing 10%, at some point whether trading futures, stocks, options---you don't want to become the majority of the market, then exchanges get involved and become like Hunt brothers. When account is smaller and you know what you doing, it is possible, but when account gets a great deal larger and you been making that 10% on some lighter traded instrument, now what?

Nothing is predictable, since your heart been ticking last upteen years, will it be ticking in five seconds? We all take our chances. Just like you bought 1,000 shares of a stock and waiting for earnings, and last 15 quarters it has beat the street, the news goes out and the stock tanks 15% on very positive results. You were playing it to what your pattern was but still coin flip.

Making money in the markets is not that hard, keeping it is very difficult, knowing when it is reversing and get out just before, very hard.

 

[toc]

Nothing is predictable, since your heart been ticking last upteen years, will it be ticking in five seconds? We all take our chances. Just like you bought 1,000 shares of a stock and waiting for earnings, and last 15 quarters it has beat the street, the news goes out and the stock tanks 15% on very positive results. You were playing it to what your pattern was but still coin flip.

Making money in the markets is not that hard, keeping it is very difficult, knowing when it is reversing and get out just before, very hard.

Predicting fundamental "events" is 10x harder than technical outcomes. Good example of "stock tanks on very positive results".

Why? may be because despite good earnings a pharmaceutical company had a major drug research "disapproved" by the FDA or a competitor makes an announcement of better research that makes former's drug pretty much obsolete sinking losses of several billions in research. How will you predict that even after talking to head of research several times who was so upbeat not knowing competition was working secretly on a better research.

Although a very metaphysical topic but as to how the price charts in a "subliminal" manner predict the fundamental "events" is a big mystery and then "also" suddenly some chart patterns fail and prices go the other direction. Very tough !!!

 

[777]

FIRST, there is actually no predictable pattern or stuff like that. Why?

Because price moves by simple trial and error method, nothing less and nothing more. All the bets are tested on real market. And that is why the supports and resistances all over the charts, either intraday or the positional trader's chart.

Price actions are not predictable. No pattern is a predictable pattern, no matter what. No technical charts and their signals going to work to meet any reasonable expectations because they all depend on some secret ingredient : predictable pattern.

SECOND, stoploss is actually a fixed loss, not something that stops loss. Fixed loss is not the wisest idea at all.

THIRD, when i say physics i mean the momentum on the chart. Of course the momentum can take off or die. The beauty is whenever you enter a trade on a fresh momentum it will make an attempt to take off. And then the take off may succeed or die. The dead momentum is mostly above the conventional stoploss.

The dead momentum is a signal to exit the trade with minimal or no loss, unlike the fixed loss by stoploss theory.

FOURTH, this posting basically is about transformation from dead patterns to live momentum. Sounds more practical? Well, its actually a blend of practicality and art. There is some amount of creative imagination needed to choose your momentum.

FIFTH... considering that stock trading is one of the most risky and nasty ruthless business... ROI anything less than 10% per month is not worth it. If someone tell you 2% is a decent one... just kick his ass. This view point gives clue whether we are successful in trading or not. If someone tell you he is a successful trader, ask what is his ROI per month.

SIXTH.....LEARN, UNLEARN and RELEARN. And never stop this learning process. "Let go" OR "Be ego".

(SEVENTH, if you are psychology savvy... the general trading psychology is... "Trial & Error method or approach")

LAST but not least... 99% of traders cannot appreciate this post. That makes me truly Elite. I have no intention to be with the crowd. I will not be surprised if no one likes this post.

Any business (including stock trading) demands two aspects : knowledge and creativity.

Price action is not predictable?

True for most people.

However, Renaissance Technologies would disagree.

Of course they see what others don't and do what others can not.

(Or maybe I do not understand what you are saying)

 

[rajesheck]

If your assertions are correct, then the market is nothing more than "random noise"... with "no regularities" to be traded with a probability of success. That is NOT correct!!

My insight...
The only predictable pattern i can see on charts is "Trial & Error method", which I label it as "No Pattern".

https://en.wikipedia.org/wiki/Trial_and_error

So much of this thread is leaning heavily on the linear.

Don't miss the exponential, Greater Picture.
Yo.

My intuition...
There is some amount of creative imagination needed to choose your momentum.

Traded correctly... you don't "catch momentum"... it rather "catches you".

My skill...
I agree... provided the trader is fully aware of the momentum.

 

[rajesheck]

Can you kindly explain and expand on your statement. I have been told over and over again here on ET that chart reading is not about prediction of the future moves?

Thanks.

Probably this may be of some help. I just picked up some interesting analogies from this thread...

Wave Analogy:
Generally speaking, trading is more about catching a wave than trying to predict one. Catching waves implies observation about what is happening NOW. Do surfers predict waves into the future, or do they see them forming in the present and try to catch a ride at an opportune MOMENT.

Car Analogy:
Much like driving a car in unfamiliar territory, you react to the circumstances as you see them occurring. I don't normally associate driving with predicting; there may be a rare moment of "intuition" here and there based on years of experience, but mostly, you're reacting to your environment on the road.

Flirt & Dance Analogy
Trading the market is like flirting, or dancing, with a woman...you have to see and sense her mood and signals. You don't just simply flirt and flirt and dance and dance your Own way like a redundant jackhammer.

 

[Van_der_Voort_4]

THIRD, when i say physics i mean the momentum on the chart.

Kind of anticipated this is gonna be interesting thread,but you disappointed me here!

If i only participated in this momentum or this momentum i would made money.
That's too shallow!

 

[rajesheck]

Pull up a chart of FISV and tell me that there has not been a predictable, buyable pattern there since 2011. The most simple pattern is a trend. I bet you also believe in efficient market theory and all that random walk crap.

I would say trend and range with reasonable volatility are momentum friendly zone, where properly selected momentum has an edge. Otherwise trends and ranges like any other pattern has no edge on its own.

I have never heard more crazy theory than the Efficient Market Hypothesis (EMH). It says market price reflects all the possible information and investors can NEVER beat the market. But market price is just reflecting the information which is ever changing. In other words market price reflects PAST information and ZERO present information. It means market price is just a creation and investors are its creators. This view is exact opposite to EMH.

 

[rajesheck]

Kind of anticipated this is gonna be interesting thread,but you disappointed me here!

If i only participated in this momentum or this momentum i would made money.
That's too shallow!

You call it shallow. I call it simple and effective !

“All the great things are simple, and many can be expressed in a single word: freedom, justice, honor, duty, mercy, hope” ― Winston S. Churchill

... and momentum.

 

[Simples]

Kind of anticipated this is gonna be interesting thread,but you disappointed me here!

If i only participated in this momentum or this momentum i would made money.
That's too shallow!

Most of us remember lots of spam-threads with lots of superficial fluff and annoying copy-paste

But there are some content in the discussion above, especially the occasionally rare cases of people embracing the paradoxes.

When people start repeating themselves over and over again, now that's just moronic