The best way to predict tomorrow’s markets

I feel like I’ve slipped into some Truman-show-style parallel universe.

Each morning the weather forecast is ‘sunny and dry’, again … this week England won a penalty shootout at the World Cup …

Perhaps tomorrow I’ll wake up to the news that we’ve found a cross-party agreement on a great Brexit deal that everyone loves …

… perhaps not.

But there’s a lot to be said for assuming that tomorrow will be much the same as today – it’s exactly how many long-term trend traders make money.

The best way to predict tomorrow’s markets

Apparently, if you base your weather forecast on the assumption that tomorrow’s weather will be the same as today’s, you’ll be right more than 50% of the time.

But, because weather does change, some of the time you will be wrong.

I imagine the met office would lose a lot of credibility if it decided to base its forecasts on this method, but if you wanted to place a bet on whether it’ll rain tomorrow – you could do a lot worse.

It’s that old chestnut … try to work it out with analysis, or play the probabilities?

As traders, we too often get drawn into complex analysis as we try to be right every time.

When, in fact, our time would be much better spent in looking at probability, and ensuring we have an edge.

The odds really don’t need to be tipped very far in our favour for us to repeat a process, again and again, and make very decent profit.

As traders, we strive to get it right, and uncover technical indicators that’ll help us find the answer. But the more we get bogged down in the process, the more we lose sight of long-term probabilities. These are all that really matter in successful trading.

Stop trying to get it right, and worrying about whether individual trades will win – profitability comes from the long-term trading stats.
 

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