To predict or not to predict, that is the question.

02 Oct Posted by in Market Forecasting | Comments Off on To predict or not to predict, that is the question.
To predict or not to predict, that is the question.

As humans and certainly as traders we are obsessed with predicting. I guess we as a species have an intrinsic uneasiness with the present. From time to time I am reminded of the almost cliche concept of “living in the moment”.

Our intrinsic restlessness makes the attainment of this state, at least for some, a  challenging proposition.  An obvious appeal of prediction, as an element of technical analysis, is the edge that it conveys to the market observer who successfully achieves such. Easier said than done! It turns out that in the “real world”, the limits to our predictions arise as a consequence of our limited resolving power.

Theoretically I have absolute perfect measuring capabilities, and as such can perfectly define the initial state of any system, static or dynamic, and that would include financial markets. However in our real world or any other, I can’t arbitrarily to any desired precision define a system. This is because of infinity.

What a concept! I typically think about the idea of infinity as related to the notion of  “in betweeness”. Or more precisely as the idea of there continuously being something in between two other somethings. To the extent that this phenomenon of infinity exists, is the extent therefore to which chaos arises and in turn imposes certain hind-rances to any attempt at precise prediction. Traders who feel beaten by this often resort to the different approach of trend following.

This process, is not hindered by the practical lack of resolving power, but instead attempts to exploit price return persistancies that will occur at times due to inertia. Both forms of analysis, predictive and trend following, have their in-hirent limitations and strengths.

For example, conceivably, were one able to isolate the property of “negative infinity”, could there exist an (mathematical) operation, the net effect of which would be to cancel out, or at least dampen the the limitations on our measuring resolution? Just a thought.


Tune in on Saturday (10/18/14)  at 9:00 am Pacific Time for my webinar presentation. I will illustrate how I shift back and forth between the two types of analysis, so as to get the maximum from the reconciled analysis.


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