JI
jimkane
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Posts: 33,089
So, NFLX finished up about a hundred from the low yesterday. Not bad. Not great, but okay, I guess.
RA
rat89
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so here's a question for the forum: to what extent, when you place a trace are you making a prediction? This is being debated on another forum now. Is the trader making a prediction or are they not?
JI
jimkane
Rep: 3,058
Posts: 33,089
I will answer this with a question. To what extent are you making a prediction when you make a bet in blackjack when you are counting cards? To what extent are you making a prediction as a professional poker player when you factor in the cards showing, the pots odds, and your read of the man*? Are you making a prediction? Only to the extent that you 'predict' there is a net positive outcome in a series of plays like this. It's really a semantical question for those that think linearly and not in probability terms. I don't say this condescendingly, even if it seems so. I am extraordinarily gifted mathematically (I only point this out to make my point, it's a fact, not a boast, and is needed for the point). Yet until I took a course in my college math program on Probability and Game Theory, I was, honestly, clueless on how probability works, or how to think probabilistically.
I can pretty much say with almost 100% certainty that if I never took that course we wouldn't be having this conversation right now, and I'd be in another profession. I never would have grasped the concept of 'probabilistic thinking' despite reading Mark Douglas's book Trading in the Zone. It's not human nature to think this way at all. Hence, what I am saying is people that can't think this way (and me, the math 'savant', couldn't until I got lucky and took that course out of interest, not knowing how it would dictate my future), can't see this can be a 'non-question' because they can't grasp that one doesn't have to predict an individual outcome to have a net positive outcome plan.
Let me detail one example before I quit. Let's say you are playing limit hold 'em. The game is 100% mathematical. No need to read the player. The odds say raise in this situation, and so on. You raise. Now, the cards come how they come. Over time, you are a net winner. Did you need to 'predict' the next card to come up each time? Absolutely not. But yet you are net positive outcome over time. Same as a card counter in blackjack. Do you predict the next card to come up? Not even slightly. Yet you are net positive outcome i.e. profitable over time. People just don't grasp this.
I used to have arguments with people all the time in the public area of this forum. They argued because the market is random (according to them), there is no possible way to make any profit. I won't even get into how idiotic an argument I think it is that the market is random. I think it's not only not random, it is so ordered it frequently, literally, scares me. So I asked can't you make money on a game that is totally random, and they scream, adamantly, NO! Okay, how about this game? You flip a coin. Heads, you win $1.10, tails you lose .$.90. Want to play? The game is 100% random, and has a net positive outcome for the player, over time. It depends on the structure of the game. Even random games can be net positive outcome. No 'prediction' is even possible, yet it can be net positive outcome.
So, to come full circle, is the blackjack player 'predicting' anything? Well, he surely isn't predicting the next card to come up (this would be closest to saying we 'predict' where the market is going on a given trade). But he is 'predicting' that he has a net positive outcome plan in play.
I'll finish with a quote that's on the top of Mark Douglas's web page:
"The benefit of thinking in probabilities helps you quantify price movement into tradeable edges."
* In limit hold' em it is 100% mathematical. You calculate based on what you know, and the play is whatever the mathematics dictate. This game favors human calculators. In no limit hold 'em you have to 'play the man'. You must be able to read the odds he has what he is representing, and the odds he is bluffing in some manner, or trying to push you around, and so on. Still, that is a skill, and is simply added to the 'odds' calculation.
I can pretty much say with almost 100% certainty that if I never took that course we wouldn't be having this conversation right now, and I'd be in another profession. I never would have grasped the concept of 'probabilistic thinking' despite reading Mark Douglas's book Trading in the Zone. It's not human nature to think this way at all. Hence, what I am saying is people that can't think this way (and me, the math 'savant', couldn't until I got lucky and took that course out of interest, not knowing how it would dictate my future), can't see this can be a 'non-question' because they can't grasp that one doesn't have to predict an individual outcome to have a net positive outcome plan.
Let me detail one example before I quit. Let's say you are playing limit hold 'em. The game is 100% mathematical. No need to read the player. The odds say raise in this situation, and so on. You raise. Now, the cards come how they come. Over time, you are a net winner. Did you need to 'predict' the next card to come up each time? Absolutely not. But yet you are net positive outcome over time. Same as a card counter in blackjack. Do you predict the next card to come up? Not even slightly. Yet you are net positive outcome i.e. profitable over time. People just don't grasp this.
I used to have arguments with people all the time in the public area of this forum. They argued because the market is random (according to them), there is no possible way to make any profit. I won't even get into how idiotic an argument I think it is that the market is random. I think it's not only not random, it is so ordered it frequently, literally, scares me. So I asked can't you make money on a game that is totally random, and they scream, adamantly, NO! Okay, how about this game? You flip a coin. Heads, you win $1.10, tails you lose .$.90. Want to play? The game is 100% random, and has a net positive outcome for the player, over time. It depends on the structure of the game. Even random games can be net positive outcome. No 'prediction' is even possible, yet it can be net positive outcome.
So, to come full circle, is the blackjack player 'predicting' anything? Well, he surely isn't predicting the next card to come up (this would be closest to saying we 'predict' where the market is going on a given trade). But he is 'predicting' that he has a net positive outcome plan in play.
I'll finish with a quote that's on the top of Mark Douglas's web page:
"The benefit of thinking in probabilities helps you quantify price movement into tradeable edges."
* In limit hold' em it is 100% mathematical. You calculate based on what you know, and the play is whatever the mathematics dictate. This game favors human calculators. In no limit hold 'em you have to 'play the man'. You must be able to read the odds he has what he is representing, and the odds he is bluffing in some manner, or trying to push you around, and so on. Still, that is a skill, and is simply added to the 'odds' calculation.
Originally posted by rat89
so here's a question for the forum: to what extent, when you place a trace are you making a prediction? This is being debated on another forum now. Is the trader making a prediction or are they not?
JI
jimkane
Rep: 3,058
Posts: 33,089
A quick summary of some things I've been saying. And after that comment on 'predicting', many will see this as me 'confirming my predictions'. I see it more like quantifying price movements and attempting to develop an edge in a Trading Plan using those movements. Sounds like a lot of fancy talk to say the same thing, but it really isn't. It's just hard to put into words for a 'non-probabilistic' thinker.
I said I see three levels where things might happen: 2100, 2106, and 2112. These are center of areas, so they each have some range. The first I thought the odds favored a checkback. The second I thought might be a bit more, given the downsloping TL (and some newer, more advanced concepts). I had high expectations they'd hit the third, given the MidCaps and Russell had already hit their new all-time highs.
First checkback came off of 2101.25
Second checkback came off of 2105.50 (once the first checkback was in this area became insanely tight and it hit it dead on)
First checkback went essentially to dead on the area I put together (if you are a recent student of mine I'd expect you could do the same work and easily see this area)
Second checkback dropped to within one tick of my key Fib calculation that I based the move on! Again, recent students should see this instantly.
Now, were these 'predictions'? Not at all. These were areas that I thought might produce price movements, based on odds. Combined with price action reading, entry techniques, management techniques, and a slew of other skills, I think an edge is possible based on these potential movements i.e. a net positive outcome Trading Plan. In this case it followed the script quite closely. Sometimes it doesn't. All that matters is what happens over time.
I said I see three levels where things might happen: 2100, 2106, and 2112. These are center of areas, so they each have some range. The first I thought the odds favored a checkback. The second I thought might be a bit more, given the downsloping TL (and some newer, more advanced concepts). I had high expectations they'd hit the third, given the MidCaps and Russell had already hit their new all-time highs.
First checkback came off of 2101.25
Second checkback came off of 2105.50 (once the first checkback was in this area became insanely tight and it hit it dead on)
First checkback went essentially to dead on the area I put together (if you are a recent student of mine I'd expect you could do the same work and easily see this area)
Second checkback dropped to within one tick of my key Fib calculation that I based the move on! Again, recent students should see this instantly.
Now, were these 'predictions'? Not at all. These were areas that I thought might produce price movements, based on odds. Combined with price action reading, entry techniques, management techniques, and a slew of other skills, I think an edge is possible based on these potential movements i.e. a net positive outcome Trading Plan. In this case it followed the script quite closely. Sometimes it doesn't. All that matters is what happens over time.
