Monday, May 21, 2012

I Predict More Predictions

Noticing a lot of predicting going on.

Cramer predicts bank runs.

Twitter is full of predictions of Facebook falling below its IPO price.

If you check the news/Twitter today -- I guarantee you'll run across at least two or three predictions.

Why do people love to make predictions?

And more importantly, how does predicting the future help you make good trades?

I don't think it does.

The main reason being: Nobody predicts the future well.

And those that can probably aren't sharing.

Predicting the future can only hurt you by creating a bias in your thinking.  Once you predict a stock has to drop, you will likely tend to focus on news that confirms your prediction and ignore information that disproves it.

I think making predictions is a natural tendency people like to do.  It makes them seem incredibly smart when their predictions come true.  And when they don't come true -- predictions are easily forgotten -- no one is ever held accountable.

CP Traders do not predict whether a trade will work or not.  They take a trade based on probability.  If it goes against them, they stop out for a small loss.  If it goes up, it was simply probability working in their favor.  It was not divine insight.

Let other people make predictions.  Focus on the charts and your patterns and rules.

And I predict you'll do just fine.

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