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View Poll Results: Is the future path of price a foregone conclusion?
Yes, all is known in advance 32 59.26%
No, markets are unpredictable but that doesn't mean you can't profit of them 22 40.74%
No, the markets are totally random and profit can only be made from inefficiencies that exist over a short period of time 0 0%
Voters: 54. This poll is closed

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Old 06-13-2008, 06:25 AM   #1

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The Unknown Future: To Predict or Not to Predict

Before I go off about this or that concept or idea, let's make clear first that none of this is representative of my own trading, let alone my own personal view about the market.

This thread is intended to discuss two fundamentally opposing views:

(1) The market is completely predictable and all you need to do is find the right key to decipher its language. But basically the market will do whatever it plans to do, regardless of any 'external influence' or manipulation. In other words, the path of price is laid out in advance.

(2) The other one is that the market is unpredictable, but not random. Randomness and unpredictability are not the same, but that's topic for another discussion. The second view is what I think most people would adhere to, and it's also what Douglas says in his "5 fundamental truths": on the one hand "anything can happen" and on the other hand "you don't need to know what's going to happen next, in order to make money of it".

Throughout history however, a lot of people have tried to determine what is going to happen next (rather than trade in the moment). Whether or not they were successful and to what extent, is another matter. Everybody knows that from time to time a new method or guru comes along, claiming he has found the secret to the markets.

Some people probably have not given the above much thought. Perhaps because they need not have to, and their trading is doing just fine.

The more time I studied charts, the more I observed that price moved in a very "orderly" fashion... although there are times where I have no idea what the market is going to do, I still make money by following my plan. On other times, the market acts like if it was destined to this or that. But let's not get into anything too esoteric

Thoughts, views, opinions,... all welcome in this thread!
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Old 06-13-2008, 06:31 AM   #2

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Gann

I thought about starting a Gann thread first, but I figured why not make it more general instead... There's been a lot talked and said about W.D. Gann, but reportedly he had an uncanny ability to predict the markets. To what extent any of this can be verified today, I don't know.

I need to be careful with copying information from a website, so please feel free to check the sources. This is an excerpt from an interview I read that Wyckoff had with Gann:

"One of the most astonishing calculations made by Mr. Gann was during last summer [1909] when he predicted that September Wheat would sell at $1.20. This meant that it must touch that figure before the end of the month of September. At twelve o'clock, Chicago time, on September 30th (the last day) the option was selling below $1.08, and it looked as though his prediction would not be fulfilled. Mr. Gann said, 'If it does not touch $1.20 by the close of the market it will prove that there is something wrong with my whole method of calculation. I do not care what the price is now, it must go there.' It is common history that September Wheat surprised the whole country by selling at $1.20 and no higher in the very last hour of trading, closing at that figure."

- Ticker and Investment Digest, Volume 5, Number 2, December, 1909, page 54.

Full interview can be found here: http://www.tradingfives.com/gann/wd-...rview-1909.htm
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Old 06-13-2008, 06:37 AM   #3

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The Adam Theory of the Markets...

Without a doubt, many people would scoff at the thought of using lunar and solar cycles in determining the future trend of the stock market (I'll admit being one of those myself)...

Followers of the Delta Phenomenon believe there is a "hidden" order in the markets. After all the publications one would think that order is no longer "hidden", but available in plain sight. Quote:

"In the early 80's, Welles Wilder founded the Delta Society International. His purpose was to share the “secret of the order behind the markets.” This order, the Delta Phenomenon, is the basis of all market movement relative to time. All other methods of technical analysis are enhanced by this timing tool. As you will learn, the Delta Phenomenon gives higher probability trading success to existing systems. Mr. Wilder states "I have solved the Delta Phenomenon for many different markets over hundreds of years of data and I have never seen a failure in this order."
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Old 06-13-2008, 06:41 AM   #4

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Re: The Unknown Future: To Predict or Not to Predict

I'm sure many of us have made "calls" about the market from time to time. Some of us probably have made some astonishing calls, but - speaking partly from personal experience - having a good idea about knowing what is going to happen next does not mean you'll necessarily make a profit from it!

Having seen people try to pick turning points and actually being right about the reversal, but being off with the timing (and by doing so, have price go against them for several hundred points before being shown right), reminds me of the famous words of William Hamilton:

"Wall Street's graveyards are filled with men who were right too soon."
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Old 06-13-2008, 07:58 AM   #5

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Re: The Unknown Future: To Predict or Not to Predict

I have a third view (yes, you are not surprised )

The market is somewhat predictable. If certain things happen in a certain context (say a retracement after a breakout) then I predict that there is a 70% chance that it will move 10 points forward before it moves 6 points backwards - thus making a trade worthwhile.

I make such calls up to 10 times a day and pleasantly surprised at how often I am right. I am even right in the 30% of times I get stopped out.
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Old 06-13-2008, 08:07 AM   #6

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Re: The Unknown Future: To Predict or Not to Predict

To what degree do you mean?

I can say GBPJPY is going to hit the 213.50 region before it will hit 209 but do you want the exact pip and/or every swing in between?
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Old 06-13-2008, 09:38 AM   #7

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Re: The Unknown Future: To Predict or Not to Predict

Firewalker brought my attention to this thread and asked that I post something I have put elsewhere. So here it is, just something I noticed whilst watching the rain.

Quote:
This is going be an odd post, in fact I think it is going to sound a bit like Victor Niederhoffer.

I tend to enjoy watching my pool when it rains. I find it quite relaxing and was using it as the setting for some of my mental preparation today. When I began watching the rain hit my pool the drops of water were quite intense and frequent. The sky was quite dark and there was a reasonable wind hitting the water. There were no sounds of birds either.

As I continued to watch, I began to hear some birds in the distance, a common sign the end of the rain is nearing. Shortly after the sky began getting subtly lighter. Not enough to slap you in the face with sunshine but the darkness was lighting up. As this occurred the wind started to die down and the rain drops became lighter. Not long after the heavy rain had been reduced to a sprinkle. I noticed a few birds coming down to the ground to find worms and then the rain was gone.

I sat there for a while longer as the sun shone through as much as it does on a day like today. I think it was about half an hour until I realized the birds were gone again. The sun began to cloud over and the sky became subtly darker. It was at this point I thought, if I was trading rain right now, I'd bet we are going to get some more.

Shortly after I could see by the ripples in my pool that the wind had picked up. Then we started with a light few drops of rain and then it came down just as it had before. Again the same thing happened as it died off. I first heard the birds and then the sky lightened up etc.

I think from this I found it interesting that patterns form in just about everything. Many say you cannot predict the weather just as they say you cannot predict the market. I agree 100% with both of those statements. In fact I couldn't have told you how long the rain would have lasted for or how long it would be gone for.

However there is a big difference between predicting the weather or market and picking up on a change in pattern. As the birds had disappeared and the sky was darkening, I wasn't predicting rain, I was betting on a change in clear skies. Something which had already shown signs of occurring. So instead of predicting, the aim becomes looking for when existing things change.

I think this relates a lot to my own trading. The times when I make silly mistakes is when I predict the outcome rather than wait for the change in pattern. Instead of waiting for the market to give signs of turning at a support or resistance level, I occasionally make the mistake of expecting it to change at the level. It would be like saying the rain will stop in 5 minutes just as it begun instead of waiting for it to show the signs it was changing.

I cannot predict the weather or the market. I still believe nobody can. I can however notice when the market tells me the current pattern may be changing. Those are the trades to take, not the predictions.
I guess I don't believe anyone can predict the market with certainty. Just as I saw the signs of the changing weather, it didn't mean we would see the sun come out, it did mean we were seeing something happen to the existing rain. It is a hard topic to discuss though because everyone sees the market differently. The way I pick up on changes in patterns, maybe there are people out there who can say how long an existing pattern will go for. Though I am yet to personally meet someone who can do that 100% of the time.
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Old 06-13-2008, 10:01 AM   #8

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Re: The Unknown Future: To Predict or Not to Predict

Questions like the one firewalker has posed pop up now and then on forums. You will quickly find out where someone stands by how they answer it.

Wasp's question is a good place to begin in unraveling the possibilities, "To what degree?" Is it fair to say you predicted the market if you are correct 70, 80,90,95 % of the time? Certainly being correct 50% would not qualify, but what does?

When a trader ventures into the time-price study, he is actually beginning to use more fully the information on his charts. Most will spend their trading careers only looking at price, but charts have both an x and y axis, unfortunately, those who dare venture in this direction are often ridiculed. Either they are dismissed quickly as "liar," "lunatic," or worse.

They say the proof is in the pudding(although the proof is in the details makes more sense). I have witnessed traders posting calls on markets that were within 2 hourly candles of being dead on the time mark and only a couple points off absolute high or low price, yet others accused them of chicanery, posting after the fact(even though time stamped), editing a post, or claiming it inaccurate.

So to what degree? I a couple of points off, and an hourly candle or two off accurate or not. Considering we trade markets that are human driven and in which we have to rely on the devices of inaccurate man to provide pricing, to supply fear and greed to move markets, and to act upon such to make a prediction.

The ability to predict must be distinguished from luck. So to what degree does one have to predict a market; time and price, before it may be considered prediction rather than luck?

To what degree? The most profound of the questions that need to be answered before one can get to heart of the question of possibilities.

fwiw,
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