Enhancing Trader Performance: The Folly of Predicting

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*****David Blair, The Crosshairs Trader, is a blogger/trader/educator who does a wonderful job of sharing research on elite performance and how it relates to trading. Below is his latest post for the SMB trading community.***** — Editor’s Note

I kick off the new year here with a few articles on the folly of predicting.  Why?  Because it is the time of year when the main topic of discussion around the financial news desks is what to expect in 2015, so throwing a little water (common sense) on the subject is pertinent.  As traders we have a tendency to believe that successful trading is about predicting well.  However, how can successful trading be about predicting well when we all know that no one can predict the future with any consistency?  But, you ask, isn’t the purpose of technical analysis to tell us where prices are going based on where they have been? No. And this is why TA gets such such a bad rap.  A TA indicator is to technical analysts what P/E ratios are to fundamentalist, simply an indication for opportunity as defined by an individual’s pre-defined parameters for putting on risk.  Neither can foretell the price of a stock.  The following may help us gain the rational perspective on the limitations of predicting.


The future, like any complex problem, has far too many variables to be predicted. (Jeff Stibel)

Investments or trades based on predictions must consider the conditions and events, as well as how the folks who make up the markets are going to react to the event. It is impossible. (Benzinga)

In the Wall Street Journal survey, if you look at the extreme outcomes, either extremely bad outcomes or extremely good outcomes, you see that those people who correctly predicted either extremely good or extremely bad outcomes, they’re likely to have overall lower level of accuracy. (Stephen J. Dubner)

No matter how good our analysis is, it is only as good as the information that is available right now. (Cory Mitchell)

Even the best card counter wouldn’t ever bet everything on any one round in blackjack. The only way he can get the overall odds arrayed comfortably in his favor is by applying his card-counting insights across many different rounds. (Mark Hulbert)

One inevitable feature of long bull markets is that, toward the end of them, anyone who prematurely voices caution will be viewed and treated as a fool. (Henry Blodget)

We must accept that we have no control over stock market direction and what we do have control over, namely, our decision making process, is easy to formulate in theory but quite another matter to follow in practice. (David Blair)

One thing I do know for sure: this year is no different than any other.  This year will be completely unpredictable.

David Blair



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