Predict Market Direction vs React To Market, Which Strategy Do You Believe in to Work ? - page 2
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You are forgetting another option (and there are probably more). In this case I am referring to playing the odds. By this, I mean that you neither predict nor react, but instead your strategy is based on statistics and the probability of certain outcomes over a longer term of several trades instead of just the current trade.
Explain? Statistical analysis is not "predication"! The word itself states it. It is the maths of probabilities. Even good money management methods are based on statistics. Are you saying money management is "prediction"? I really hope not.
Basically, one does not predict the direction of the market nor the outcome of a trade. Instead one looks at the probabilities of say 100 or 1000 trades, where their probability of the win rate and the profit to loss ratio combined gives us an edge. One does not worry about individual trades but the overall statistical "picture" of the strategy over many trades.
There are so many traders out there that use purely statistical analysis for their strategies, and there is no prediction involved. Some of the strategies don't even use technical analysis based on indicators nor even consider price action methods either. Some are just pure maths being applied to manage the trades and the risk.
Just do a Google search and you should find many hits about it. Some are difficult to read and go heavily into the maths but others are somewhat more straight-forward and easier to understand.I don't believe the question of reacting to market vs predicting market direction is valid. Meaning, you need to be right in direction as well as be correct in price when entering a trade. That means you have to react to the market when a specific price is reached, and you have to actively predict the next price move as soon as you place a pending order or open a position (place a market order). When you exit the trade, the same is true. You must predict whether price will move with you, against you or go sideways. Plus, you'll have to react to the market as soon as any these actions occur in the traded market.
Explain? Statistical analysis is not "predication"! The word itself states it. It is the maths of probabilities. Even good money management methods are based on statistics. Are you saying money management is "prediction"? I really hope not.
Basically, one does not predict the direction of the market nor the outcome of a trade. Instead one looks at the probabilities of say 100 or 1000 trades, where their probability of the win rate and the profit to loss ratio combined gives us an edge. One does not worry about individual trades but the overall statistical "picture" of the strategy over many trades.
There are so many traders out there that use purely statistical analysis for their strategies, and there is no prediction involved. Some of the strategies don't even use technical analysis based on indicators nor even consider price action methods either. Some are just pure maths being applied to manage the trades and the risk.
Just do a Google search and you should find many hits about it. Some are difficult to read and go heavily into the maths but others are somewhat more straight-forward and easier to understand.Money management is the part of risk management. Hence, money management is not the topic here.
However, if the multiple regression or logistic regression, or artificial intelligence or correlation or cointegration as in Pairs Trading is used to decide buy or sell decision in financial trading, then it is considered as technical anlaysis.
Of course, in this post, you can bring any statistical method that you believe it is not technical anlaysis. But be specific or give the name of the method you are referring to.
Based on your experience, please share Which Strategy Do You Believe in to Work between Predict Market Direction vs React To Market.
It will be helpful for the newbies as well as the experienced traders in this community.
I believe in mathematical and theoritcal methods like :
correlation between all available instruments with historically strong correlation. For example WTI and Brent, DE30 and F40. determines levels of correlation and automatically at the same time sells strong instruments and buys weak instruments when the correlation between them weakens or diverges beyond a pre-defined level. Once mean reversion (or by opposite signal -pre-defined ) takes place the locked position created by the two orders: buy and sell, must be generally be in profit.
I believe in mathematical and theoritcal methods like :
correlation between all available instruments with historically strong correlation. For example WTI and Brent, DE30 and F40. determines levels of correlation and automatically at the same time sells strong instruments and buys weak instruments when the correlation between them weakens or diverges beyond a pre-defined level. Once mean reversion (or by opposite signal -pre-defined ) takes place the locked position created by the two orders: buy and sell, must be generally be in profit.
Yes, one of the estabilished method for your correlation strategy is called Pairs Trading or statistical Arbritage.
What you described is very close to the pairs trading strategy itself.
It is popular and used by many good traders. Of course, there are good educational materials on the internet for many other correlation based strategy.
At 50 Votes landmark, here is the trader's voting results.
1) Predict Market Direction (Trade after you predict buy or sell market direction using the technical analysis.)
38% (19 traders)
2) React To Market (Trade if price is pushed to one direction as in support resistance or some sort of breakout trading. You never predict market direction but you react only. )
48% (24 traders)
3) Both stratgy does not work
14% (7 traders)
Tested and proven in Mutli Timeframe strategies