2.8. Prediction – Holy Grail – 100% winning ratio
There are two big classes how to analyze or to predict price movement:
1. Fundamental Analysis.
You need to study economic; you need to know that country’s condition inside out and you need to study multidimensional aspects affecting the economic of a country. There are so many things to analyze and to do in order to predict. Do you think you can beat an Economic Professor in predicting the economic outcome? If you want to trade with fundamental analysis you’d better find a good Economic Professor or an Economic Analyst. Or your bank is a good start to find a good article about economic condition of a country.
But the big question is can you use this prediction to trade and to make money? Maybe, if your trading horizon is 10 years long or longer. But most of us can not afford more than one year of trading time frame. Anything can happen in between. And you can not maximize your return using 10 years time frame.
2. Technical Analysis
Most traders start by studying basic charting, trend line or trend channel, support and resistance, then they learn basic patterns, such as head and shoulder, double top or bottom and candlesticks patterns. And then they feel they are not good enough to predict accurately, therefore they begin their journey to find the Holistic indicator. Finally their trading chart is full with indicators. When the judgment day comes, they don’t know what to do, because their indicators are contradicting each others. Most indicators are calculated based on previous data. Those data are history. None of those historical data will affect the outcome of the future price will be, especially in the short term period.
Make peace with the market. You have to accept that there are only two possibilities of the price direction, either up or down, and they equally have a 50-50 chance. If you flip a coin, it will have 50% head and 50% tail. If you flip a coin and it turned up 7 times head straight, it does not mean that for the eight time you flip the coin, the probability of tail will goes up to 80%. The probability is still 50% up and 50% down regardless of the previous outcomes.
You have to accept also that nobody can predict the direction of the price within short time frame (less than 1 year). There are so much noises and unknown events that can change the direction overnight.
Some traders will argue, that they can predict more than 50% accurately. Yes, I believe them. It took years to develop trading instincts; you need to eyeball the chart for many hours everyday; you need to have steel nerves and iron gut to discipline yourself to enter a trade after subsequent losing trades. 95% of traders and I don’t have the luxury to eyeball the market everyday. 95% of traders and I can not discipline our self to keep entering the trade after subsequent losses. And most importantly, I do not want to trade like that. I want a system that is simple, and still can make profit whether the price is going up or down. YES, it is possible and real.
Some traders already realized that they can not predict the price direction, so that they start using other trading systems, such as grid trading and averaging. With these systems you just buy or sell at predetermined price levels. But many traders abuse these systems by using high leverage; one strong trend will wipe all the capital.
If you use this method:
- Cut loss when your prediction is wrong.
- Risking 1% or 2% of your capital per trade.
- Using true leverage more than 1:10.
You are doomed from the beginning, losing all of your account is just a matter of time. If 95% traders use that method fail, why do you keep using that method? You need to think out of the box.
By using this method, your entry and exit are very important. You can not afford to make a mistake, your margin of mistake is very small. In my opinion entry is not important, because nobody can predict where the price is going to be in the short term. The most important thing is your exit; what will you do if the price is going against you.
These are the most common reactions when the price is against your trade:
- Cut loss.
- Do nothing and prey because you do not know what to do.
But there are other options to choose if the price is against your trade:
- Do nothing because you believe that your position can hold the worst swing.
You need to consider the uncommon ways for your exit, especially if the price is against you. This is one of the important keys to be successful.
I will talk in more details later in my mentorship program about trading techniques. I will talk the strengths and weakness of each technique and how to apply them. I will talk about hedging technique which you will not find elsewhere. I will talk how to hedge and how to open the hedge safely and uncomplicatedly. I only apply the hedging technique in my medium risk trading system. By combining several exit techniques and hedging, I can boost my ROI while stay relatively safe.
Stop looking for mighty indicators, robots, or systems that try to predict. Develop your own system that can make money regardless the direction of the price. You do not need to predict in order to make a profit. Make your system to be 100% wins. I’m not saying to make a 100% profit, but make your system to make every trade is a winner. Is it possible? Is there a Holy Grail in trading? YES, I’ll show you my win/loss ratio report from my life account in 2010.
Most of you will be skeptical. It is up to you if you want to believe it or not. I put this report here not to show off. I am not bragging that I made 1000% profit that year but I only made 13% profit return for that year. I just want to show you that 100% guaranteed winning rate can be achieved if you are willing to seek for it. The secret is so simple: use no or low leverage and do not use stop loss at all. I will explain more about leverage and stop loss later.
Here is the update of my win/loss ratio report from my life account in 2014.
- There are only two possibilities where the price going to be, up or down. And the odd is equally the same, 50:50.
- In short time period, nobody can predict the price movement.
- If nobody can predict the price movement, then stop trying to predict the price movement.
- Then, you need to find a trading system that makes money regardless of the price going to be.
- Your trading system goal is 100% winning rate.
- Entry is not important. But exit is very important, how do you exit when the price is against you determines your success.
This is very important: