Forecasts, predictions and Market Timing

Forecasts, predictions and Market Timing

Whatever the reason one has a trading futures and commodities, currency or stock markets, everyone can agree that in order to trade profitably you have to buy low and sell high or sell high and then buy low back. It's a simple reality that deserves no debate.

However, although everyone knows that you need to buy less than they sell, and vice versa, it is deciding "where" to buy or sell that makes this simple concept very difficult to really know. In other words, if you have enough money and an infinite amount of time to just buy the market, without any thought of market direction and just stick to "one day" price ranges high enough to justify taking profits, you should determine the "direction" before taking the trade.

Now consider that point. In order to buy low and sell high, must determine whether the market is likely to move up rather than down shortly after you place your ad. So look at the price chart or two, draw some lines or some calculated moves, plot 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 it.

This is called "Planning your trade. You can do this with what is known as technical analysis or fundamental analysis. Whatever means you use, and what you want to call it, they are all part of the process of forecasting and prediction.

If you've been in the business of trading for long enough, eventually you will come across some traders who would snub their noses at the thought of anticipating or forecasting the markets. However, these many of them do not hesitate to tell you that they 'instead of' use technical or fundamental analysis to make their trading decisions. This reminds me of how in today's society refer to as airline stewardesses flight attendants, homemakers as domestic engineers, garbage collectors as environmental specialists, and other similar synonyms.

Forecasting and prediction of the future and commodities, Forex and Stock markets have little to do with wands and pointy hats as there is much to be done by simply determining when the market is "likely" (probably) move in the anticipated direction. Anyone who uses any form of technical or fundamental analysis to make a determination of the direction or market timing is actually involved in the work of forecasting and prediction. Call it what you want, give it a new name, or contemptuous shrug it off, but if you're worth your salt as a trader you must plan your entry and exit from your plan. You need to decide before the time, the market will likely be what you are going to do. In addition, you should plan what you are going to do if the market does not do what you planned. But that's another topic altogether.

So the next time a merchant looks down at you because you do a "forecast" or "predict" the market direction for the purpose of market timing, simply reply: "I say to-may-toe, I say toe-ma."



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