Forecasts, Predictions and Market Timing

Whatever the reason one has for trading in the Futures and Commodities, Forex or the Stock markets, everyone can agree that in order to trade profitably you must buy low and sell high, or sell high and then buy back low. It is a simple reality that deserves no debate.

However, although everyone knows that you must buy lower than you sell and vice-versa, it is deciding ‘where’ to buy or sell that makes this simple concept hard for many to actually do. In other words, unless you have enough money and an endless amount of time to just buy at the market without any thought of market direction and just hold on until ‘someday’ price moves high enough to justify taking profit, you need to determine ‘direction’ before taking a trade.

Now consider that point. In order to buy low and sell high, you must determine if the market is more likely to move up rather than down shortly after you place your buy. So you look at a price chart or two, draw some lines or calculate some ranges, plot an indicator or two, and then make a determination of whether the market will likely move up or down, and when it is likely to do so.

This is called ‘planning your trade’. You may do this with what is known as Technical Analysis or Fundamental Analysis. Whatever means you use, and whatever you wish to call it, they are all part of the process of forecasting and predicting.

If you have been in the business of trading long enough, you will eventually come across some traders that would snub their noses at the very thought of forecasting or predicting the markets. Yet, these very ones would not hesitate to tell you that they ‘instead’ use Technical or Fundamental Analysis to make their trading decisions. This reminds me of how in today’s society we refer to Airline Stewardesses as Flight Attendants, homemakers as Domestic Engineers, trash collectors as Enviromental Specialists, and other such synonyms.

Forecasting and predicting the Futures and Commodity, Forex and Stock markets has little to do with wands and pointy hats as it has much to do with simply determining when the market is ‘most likely’ (probable) to move in the anticipated direction. Anyone who uses any form of Technical or Fundamental analysis to make a determination of direction or market timing is in fact involved in a work of forecasting and predicting. Call it what you want, give it a new name, scorn or shrug it off, but if you are worth your salt as a trader you need to plan your entry and plan your exit. You need to decide, ahead of time, what the market is likely to do and what you are going to do. In addition, you need to plan on what you are going to do if the market does not do what you planned. But that is a different subject altogether.

So the next time a fellow trader looks down at you because you are making a ‘forecast’ or ‘prediction’ about market direction for the purpose of market timing, simply reply; “you say to-may-toe, I say to-ma-toe”.

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