Living Will Versus Advance Directives
Day Trading: Predictive Versus Reactive Style
One of the most difficult aspects of trading is to determine in advance which way the market is going to move. The longer the time frame in question, the more difficult it becomes to determine which direction the market may move. Of course, you could always watch the television and take the advice of the “talking heads” that pound out a drumbeat of predictive information on a regular basis. The problem is a simple one though, if they really knew which way the market was headed I have serious doubts they would be announcing it to the public. Why not just trade the market and make a fortune? The problem of determining just which way the market is going to head has long plagued investors, both professional and amateur. According to Efficient Market Theory, the market is random and therefore accurate prediction is not a possibility. This widely held theory, taught mostly at the university level by academics, precludes most types of market prognostication. Yet there is no shortage of market prognosticators. At this juncture I would point out that predicting the market is a binary process, that is to say the market will either go up or go down. So any market prognosticator has a 50% chance of being correct. (This assumption precludes the possibility that the market will stay the same, which is a highly unlikely event) It is well documented that the shorter the time period in question, the more likely market direction can be determined. For example, it is much easier to predict market direction and a five minute interval than it is in a five-year interval. Why is this true? As most traders and investors will attest the market tends, at times, to trend in one direction or the other. According to most studies, the market trends about 40% of the time. The other 60% of the time the market is busy backing and filling, which is a normal function of the market. Sometimes backing and filling is referred to as consolidating, and at other times of supply and demand factors in the market are in equilibrium and the market range is very limited. As investors and traders, we are interested in those periods when the market is trending in one direction or the other. But therein lies the rub, a large portion of the investment community makes a living trying to predict when and how long these trends will begin. It’s a dicey business, at best. To be sure, the success rate in this endeavor is dubious. There are economists who get on hot streaks and put together some periods of success, but then generally fade back into oblivion as their predictions become less accurate. Market history is filled with scores of economists and analysts who, for a time, become famous for one prediction or the other and then fail in subsequent prediction endeavors. I am a scalper, which is a trader who deals and trades of very short duration. Most scalpers do not try to make any predictions on the direction of the market other than following an existing trend. Instead of predicting the market, scalpers tend to react to the market and take what the market offers and profit. That is to say, I don’t try to predict when a trend will begin, but prefer to ride a trend once it has been established. That sounds fairly easy, I know. But it is anything but easy to trade in a scalper style because the length and intensity of a trend are not known. Of course, scalpers use a variety of oscillators, rate of change indicators, and trend indicators to determine when trends may begin to subside. But there is no highly exact technology that ensures a scalper guaranteed success. The point I am making though, is a simple one. Most traders who trade in the scalping style are not interested in predicting the intermediate or long-term direction of the market. Scalpers are looking for existing trends and seek to carve out a small gain, say two or three points, from an existing trend. We are a group of traders who react to the market as opposed to predict the market. I do not seek to determine when the market will peak or bottom, I am simply interested in the path it takes from peak to bottom, and whether that path is a trending path or a choppy uneven march. I seek the trends, and try to avoid the choppiness that is often prevalent in the market. That is to say I want to trade during the 40% of the time the market is trending and avoid trading the 60% of the time when the market is backing and filling, or consolidating. As you may surmise, there is very little predicting that goes on in a scalpers mind. Rather we are looking for trends, and avoiding the backing and filling operations the market goes through. As I am proofreading this article, it occurs to me that it sounds awfully simple to implement the strategy and I want to dispel that particular notion. It takes a modicum of skill to discern trends and enter these trends at the proper time. Obviously, entering a trend near a peak might well result in an unprofitable trade, and it is not unusual for this to happen. It takes skill, experience, and a sound understanding of the indicators we utilize to be profitable in this endeavor. In summary, scalpers seek to react to the actions of the market as opposed to predict the actions of the market. We seek the trend once it has begun. We do not seek to predict when a trend will start, but simply wait for it to start and attempt to profit.
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Bruce Braley – ER Nurse discusses Advanced Directives & Living Wills
