Problems with Predicting the Market, Avoid Market Prediction

Friday, June 6, 2008

The Problems with Predicting the Market

Many traders, especially beginners try to predict the market and often face huge losses. Although most markets behave in a cyclical manner, this cycle isn’t that much predictable – especially for short-term traders. There are many things which influence the market performances and no single trader can consider all those at the same time. Here are important things/facts to consider.

No trader can accurately analyze all the forces and factors which influence the market direction or the financial instrument price.
There is always uncertainty in the market.
A good trader determines the possibilities with most accurate information to which he has access; and makes a trading decision with regards to the greatest possibility.
The trader then hedges against the other possibilities by using some strategies.
He constantly monitors the market/product and recalculates the possibilities and changes his trades with regard to the change of possibilities.
Inexperienced traders often calculate the possibilities correctly and start trading with respect to the greatest possibility like good traders; but they do not hedge against other possibilities.
Inexperienced traders often stick with their first decision and do not make changes with regard to changing possibilities; and then suffer losses.
Successful traders make right decisions at right time while inexperienced traders make delayed or early decisions.