There are lots of signal services, newsletters, and trading rooms offering predictions for the coming days, weeks and months in advance of what the market is going to do. It is a very tempting proposition to give subscribers a peace of mind on what the market is about to happen. Some believe it is possible to see what the market will do and subscribers do follow these services. Unfortunately, the predictions do not exist even if these advisors are seers. No one can make correct predictions even 50% of the constant time, the market is either rising or falling.
When traders anticipate what the market will do, is the same as forecast? Prediction is declaring something will happen exactly in the future with only one outcome while anticipation is to reflect in advance for all possible outcomes. Anticipation requires dealing with problems before they arrive; forecast expects something to happen without facing. Prediction tends to take a bias or position while anticipate requires careful thought of what could happen: good or bad.
An example of anticipation is when the trader is watching the price rise and approaching an old resistance level. It is expected that prices could continue or reverse. He must make preparations to tackle both scenarios. One is to prepare the breakout and continue upward, must determine at what price it will go long and where the stop loss will be placed. If the price reverses, must determine where the item will be short as well as stop loss. These scenarios to prepare for the next price movements, anticipating what the rest of us do when prices reach the resistance level. If he predicts that prices will, for example, is in progress and will continue to rise. He has no plans for any reversal. He focuses only on the uptrend movement and not on the possible reversal or consolidation. These scenarios need to be constantly assessed and planned as the markets evolve constantly. This mindset makes a huge difference between a successful trader and a losing trader.
Predicting is a losing game, fueling the need to be right instead of making money needs. The ego is often the culprit to show off to other traders how good he is to predict the direction of the market. In business, the ego and profitability can not coexist. If it is not ego, most traders will seek a direction and then use the evidence to support that discrimination ignoring the evidence that may support the opposite direction. This prejudice is to predict the future. It tends to bring the mindset until after the trade is done. It can be a profitable business, but eventually the dealer is so convinced of this prejudice that, when the market fails, will have no alternative in the preparation for the loss.
One of the desired characteristics of a successful trader is his ability to prepare for all possible outcomes, imagining the scenarios the market can do, up or down, before the trade is done. He knows that it can not predict but able to calculate the probability of market that goes one way or another. In anticipating the outcome, he has a plan for a result or another. What if the market goes against his position, when he quit? What happens if the market goes in favor of his position, where he was to go out and get profit?
Anticipating is preparation for both results, good or bad. Calculating how much to lose as important as how much you expect to win. This means that the trader will identify the plot where you will see the entry point and two exit points (stop loss and profit target). Having this method, you can identify its risk-ratio as premium and the probability of success of the business.
So how do we overcome this dilemma? The odds can be made found through rigorous testing historical data based on strategies that the operator intends to trade with them. Find the statistics to back his idea that the works of the strategy will give you confidence in the approach to the market and give the mindset to anticipate and do not predict the results. One way is to see the market as it shows us both the price action or indicator.
Recognize that prices or indicator can change direction at any time. Using statistics to make a guess, the operator can find which direction the market will probably go. But probability can not guarantee the desired outcome. This means that a backup plan must be in place, that is to say a stop loss, in the case in which the desired result does not happen. This is why successful traders have stop loss in place. A stop loss is a decisive factor in whether the result it worked or not. The trader must accept that the market will always be right and trying to be right will prevent the professional to be one with the market and go with the flow.
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