I copy here my newsletter Feb 9th on topic of prediction - u may or may not find it interesting :-)
Latest comments have been in this thread.
https://www.traders-...sh-to-me/page-3
https://markdavidson...like-prediction
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Thought to self - Why do people try to PREDICT the market?
I guess I could cynically say - to make a big call then dine off it for years..it seems many people have a cognitive dissonance where they forget wrong calls, and remember ‘the big calls’ - but that’s marketing not trading -
Trading = have a probability (win/loss) system of some kind for entry, exit, stop, profit and ideally risk/reward assessment - I observe most investors don’t have this, or understand it - whereas Day traders/short term HAVE to learn this the hard way. I would add an understanding of position sizing as well.
Lets be clear what I am saying, because I am pretty OCD about definitional clarity -
Data/Information= the current market price, current market price patterns, current sentiment data, current signals of many kinds ...the key word is CURRENT, as in NOW.
Prediction = the Future and the longer into the future, the less likely you can actually 'predict', of all those above. I would guestimate that the ‘curve’ for future prediction For Intermediate moves drops to about 50/50 by about 1-2 week - beyond that you are into Nostradamus mode. For the biggest trend, I believe its possible for the 6-12 month cycles to have better than 50/50, but its nowhere near 100% - maybe 60-80% at best so not something to not a ‘hill to die on’ in terms of absolute certainty - I see very high odds its still bear market that far out, but I recognize data may change, not to let that mentally box me in.
I mean, you can't actually TRADE/INVEST beyond the current day, unless you have a time machine.
I do it for 'fun' as start of each year, but, I made it clear that's what it is - and I try NOT to predict. Why? because :
a. It actually impossible, despite the beliefs of many that it is - they are wrong, and I can say that with authority because it a 'math issue' not an opinion - the future is unknown, and the quantum probability nature of universe ( don’t make me explain, you will lose hours of your life and feel woozy - ‘reality’ is infact the ‘view’ produced by an observer consciousness that collapses a Quantum probability waveform via quantum fields) , and unknown future information means prediction is impossible - if by predict you mean know 100% what will happen, you might be able to get better than 50/50 - but that's NOT how most people use this, they make bold proclamations - 'we are headed to 700 spx in over 3 years' or 'its a new bull market' - except, it isn't, is it? not currently, not by well established metrics - how is the comp 'in a new bull market', nor is SPX ...
As I like to say - 'if an unforeseen meteor hits the earth tomorrow, no TA of any kind will 'predict it' - because market prices only incorporate known information, plus judgement of future information' - which currently doesn't include a massive meteor strike - so no, Wave counts, Price, technicals, sentiment, chickens feet, astrology etc will NOT see it coming - to believe it will, is to ignore reality, some call that being delusional.
b. It BOXES you in - mentally. I know this from day trading.
Day trading is great learning tool - because there isn't really TA - its just price levels, pattern, and a few signals - so simpler and more immediate - you also get a TON more 'data points' on your skillset - Investing can take 20 years to see faults if you don't make many 'trades', if you do 3-5 trades a day, in a month thats 100’ish ..much faster feedback. I don't find most investors understand RISK, or trade management well - they think its about 'being right', which is wrong, because its actually more about how to manage 'being wrong' - to accept and limit losses.
Once you 'predict' and say 'this shall come to pass' - it puts you in a mental box - ego gets involved, and that's doom as all who have spent enough years trading/invest know.
I can see no benefit ? In day trading I literally just eventually ( it took long learning curve) sat and passively monitoring data the market is giving me in real time - its REALLY BORING!
- I think people are 'looking for buzz' with prediction - the thrill of telling the market what it will do, its fun, i've made some 'crazy calls ' over the years and could point to them like many do - it wows the crowd, but its again a doom because it suckers you in to making the 'crazy calls'.
So, take right now -
Do I actually need to know if this is a bull or bear market?
Is it helpful? - we can argue definitions but most people accept 20% drop as bear, but then, what turns that bear into a 'new bull' get more subjective - shouldn't it be a 20% rise for symmetry?
Personally I use different math - which I'm not going to say - doesn't matter but if someone tells me 'we are a new bull market' they need to give their math - 20% rise, a rise above 200 dma , a higher low/higher high etc ...
But again - does it actually help? I have concluded it doesn't, even though I myself say these things!
Let me give example using points above from my video’s last few months -
- I went Long 401 K in Oct low as I posted, and I held into the end of year as I said I would expecting to move to cash - ALL during that 'being long' I said its a bear market - yet I was long, so it didn't effect that position.
- I didn't go to cash end of year as posted - I said I need to see XYZ criteria met - still haven't see it ..I still think it s a bear market - so again, why does it matter?
This is why I say that to me, from experience, the best timeframes to invest are Intermediate term (it means your aligned with the next higher trend - bull or bear anyway) ...and for 'trading' ironically I find the longer bull/bear trend for smaller positional trades - or day-trades ...I think the worst is Swing ( most targeted and difficult to hold through ALGO games) or positions taken one day held to the next - all my worst trades were those two timeframes.
^this is why I say I am 'not a bear or a bull' - I just go off the data ...by which I mean CURRENT not the 'future' possible data ... and as said, the BEST you can do is 70-80% win/loss over longer time, because the market has 'randomness - unknown future information' - AND quantum nature means the 'less likely paths' occur on occasion.
TO sum that up - humans are bad at markets generally for 3 reasons ( me included and took me years to learn this)
1. They start predicting - and that gets ego involved and 'mental boxing in' - a bias infact, all data is seen trough the bias - selection bias, confirmation biases leading to 'information error' and 'unwillingness to change position'. Been there done that.
2. Not knowing what timeframe they are trading/investing and so not looking at correct current information - as said, if i'm investing for the IT ..I don't care if its a bull or bear - that only really matters at the turns - if you try to capture the 60-80% of a move it doesn't matter, its if again you try to 'call the turn' at 100% its trouble.
3. Not understanding RISK - Reward - stop loss - profit exit - its as hard, or harder to calculate this than 'buy or sell' signals people obsess over - I found day trading made me understand this and how difficult it is, and I dont see that skill in investors and they would benefit.
So, are we in a bull or bear market? Frankly my dear, I don't give a darn :-) ..I believe it’s a bear because it hasn’t been proved its not yet mathematically, and I for many reasons with my prediction hat on - but that is of no current value. I would say it only becomes relevant for CONTEXT of key price levels I use.
So RIGHT NOW - current data - what is is saying. I’ve made quite a few posts, but if you didn’t catch them here a summary
- I (my data) was looking for a ‘blow off’ upward move around the FED - which we got !
- I was looking for 4200 spx cash to act as strong weekly resistance - it has, because it is!
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I was looking for sentiment to shift to bullish side - and this has exceeded my expectations and entered ‘euphoria’ levels - call buying, Rydex and other.
Couple day ago I said - I am seeing this Blow off topping out, and looking over next 1-2 weeks to being a pullback , no target but below 4080 would trigger it.
This is not prediction - prediction would be If I now said - and then this , then that will happen and sure i have a ‘road map ‘ So this is where I need to be clearer - when I start talking road maps - this isn’t about trading, perhaps I should not give road maps but over years people like this - and my road map I’ve gone over in video was exactly this ..a long IT move to flip retail bullish- … I still see we could spend More TIME - so a pullback ..then another runup into March.
But what matters is positions
- For investing I remain LONG from October - as I went over in posts - until 3950 is taken out, or new current information makes me move to cash.
- For trading - I said I would not go long here above 4150, as I see 4200 being sold on weekly basis …I’m not going to say how to trade that, but its been good for couple sell off .. and a Break of 4080 is signal for bigger drop/swing down.
Actually - here a copy of posted comments in intraday thread for reference:
I’ve been posting the intraday comment to both Substack and FF - following threads - alot more detail in those threads.
https://www.traders-...for-2023/page-3
https://www.traders-...-bearish-to-me/
https://markdavidson...entary/comments
Jan 31
HEADS UP - Looks more and more like approaching a RETAIL BLOW OFF moment here ..rapid shift to bullishness/covering shorts ahead of the FED here ... I think this will put in the PEAK RETAIL LONG TRADE for this bounce before or after the FED ...
Jan 31Pinned
HEADS UP - I said I would give more indication of my own longer term positions here to help clarify my read - I did go over this in last video. I've been LONG investments since Oct low - and I said haven't seen what I need to YET but looking to move to CASH before next big downleg. OK - so what specifically do I need to still see
- The sentiment 'flip' - getting close as i've gone over
- Technicals weaken ...I believe this will happen next week or two.
- A PRICE REVERSAL -
…So, for now, Risk/reward remains LONG or more 'do nothing' until I see the above.
Posted Yesterday, 12:33 PM
I beleive the current SWING up has topped or topping - the IT trend is harder to say ..this may just be a drop to clear the overflowing bull bus ..but so MUST hold pivots
- we blew out top of SPX range 4100 - by 2% upto the 4200 weekly bear resistance post FED and FAILED there
- NYMO gave a sell signal here and summations are rolling over
- Sentiment has seen on my real$ data one of biggest shifts from 'bearish to bullish' positions relative to price change in HISTORY ..read that a few times!
- price has failed to hold the breakout pivot 4100
Edited by EntropyModel, 17 February 2023 - 05:32 PM.