Market Predictions Are for Show, Trading Tactics Are for Dough
Some claim to see — or chart out — the future. Here's how to seize opportunities, instead.
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If you want to produce significant investment returns, focus on trading tactics, not market predictions
Fortune tellers can be very entertaining, but most people don’t take them too seriously. People who claim they know the future usually have some sort of hidden agenda and are deceptive about their track record of success.
The stock market is one endeavor that embraces and celebrates those who claim to have great predictive ability even when they have no track record of success. All that is needed is one lucky call to be proclaimed a market genius.
The people who wrongfully predict what the market will do are the most prominent names in the industry. Large brokerage houses and fund managers make billions by marketing their ability to know what is going to happen years into the future. What better way to make money than to know the future and to make all the right moves?
I’ve been a full-time trader for a long time, and with each passing year, I have less respect for prediction as a way to effectively navigate the market. Guessing what the market is going to do at some point in the future is not what generates the bulk of profits. The big gains have always come from understating and reacting to what is happening in the present and developing tactics to capitalize on it.
Many investors love predictions and want to believe in them. They argue that any time you make a trade, you are predicting the future to some extent. That is true, but there is a major difference between the long-term predictions that the media, pundits, and traditional Wall Street love so much and the navigation of price action that is occurring in the present. We may need to make short-term predictions, but the reaction to current conditions and trading tactics matter more.
We may need to make short-term predictions, but the reaction to current conditions and trading tactics matter more.
One of the most empowering things you can do as a trader is to admit that you don’t know what is going to happen. It can be helpful to formulate a thesis and have some opinions about how things may unfold to provide context, but then keep an open mind and be willing to let the price action guide you as to the proper course of action.
There are always very smart, bullish, and bearish market professionals with compelling arguments. Some are very confident that 2025 is going to be a very tough year, and some are confident it is going to be great, but it is the journey that matters more than the ultimate destination. The way you navigate the inevitable ups and downs is going to determine your success more than anything, and it is trading tactics that matter the most.
Things never develop the way that anyone thinks. The market is muddled right now, but many significant catalysts are on the horizon. That is all I really need to know. I am always prepared to deploy various trading tactics as the price action develops.
Many investors use charts to try to predict the future. This or that pattern is viewed as an indication that an index or stock will do in the future. Charts help you recognize trends and other factors that impact future price movement, but a "good chart" can turn ugly in the blink of an eye and render extrapolation to the trash heap.
The primary value of charts is as a trade management tool. A chart provides the framework for you to develop trading tactics. If this level is breached, then you take this action, or if a move becomes extended, then you do this. Dip-buying and chasing momentum are all tactics that depend on the charts.
George Soros once said, "The idea that you can actually predict what’s going to happen contradicts my way of looking at the markets."
Soros knows that predictions are an ineffective way to approach the market. He needs hard evidence before he makes a big move. When the price action is in his favor, he becomes more aggressive, and when it goes against him, he gets out. Soros embodies the idea that the tactics you use when you are in a trade matter far more than the predictions that you make.
Predictions are for show. They generate attention, make you feel like you are in control, and can be very entertaining. Sometimes, predictions even are correct. It is a tactical response, however, to current price action that makes you money. Building a big position as a stock develops or cutting a loss quickly when conditions change is what makes you money. It is more work and requires more attention than just making a big prediction and hoping it comes true, but the risk is lower, and the returns are greater if done right.
Focus on the now. Work on tactics as the trading environment shifts. Smile and nod at those who tell you what is going to happen months or years from now. We’ll worry about it when it actually matters.
I’ll have more in a future column about some useful short-term tactics.
At the time of publication, DePorre had no positions in any security mentioned.
