It’s what we follow. It’s what we chase. It’s what we hold onto too long. We are always trying to figure out where it’s going. But we always know where it’s going. We knew it was going to do that. We should have known it was going to do this. It makes you bash your keyboard with a fist. It makes you give your wife a kiss. It makes you pour another drink. Price.
It is the sum of all knowledge, wishes, emotion, algorithmic computer programing, bankster scamming, commercial hedging and stop running at any given second of the day. Due to all of these competing currents being generated by man and machine simultaneously, price will ebb and flow; it will act and then react.
As such, it cannot be predicted, and only market losers will waste energy trying to do so.
In many respects, the “Random Walk” theory does hold sway. Price movement is quite random and is very likely to go up OR down by equal increments, from any given moment that you decide to buy or sell. This may sound hard to believe, but when analyzed from a statistical perspective, you will come to understand this, and accept it as a fact. Go ahead and check out the Probability tables in the Alchymist platform for statistical proof.
Lets look at Price History of the US 30 Year Bond Future.
Remember, this data is being analyzed during the greatest Bond rally in history, or bubble, (whichever you prefer). We can see that over 10,145 trading days of data, over a 20 Day Trading Interval, Price on Average rose 2.53 points and declined (2.43) points - or said another way, 1:1 odds on average.
Over that same time interval, the 70th percentile movement over 20 days was 1.10 up vs (1.0) down, or 11:10 - A touch over 50/50 odds.
Let's look at Coffee:
Here the Average move over 20 Days is 10 up vs 9.4 down, while the 70th percentile is 3.5 vs (3.20) or 12:11 odds.
You will see this story across all contracts, all sectors, except for equities where we only have 20 years of Futures price history, and 3 massive bubbles squeezed in during that time period. Once the latest bubble deflates, stocks price history will look the same as all the others.
So statistics show that on any random bet, it's coin flip odds. Once you do accept this fact, everything else will fall into place in your trading. Because nobody would ever bet their whole wad on a coin flip, or 11:10 play. Nobody would hold on stubbornly to the belief that the next coin flip “MUST BE!!” heads or tails. And it is these 2 characteristics that lead to the ruin of most Futures traders. It is said that close to 90% bust out within a year, and from personal experience I can attest this to be true. The thing is, I’m a stubborn man and I refused to lose, so I always came back.
Yup...Just like him.
And multiple times I did, and had to, until I finally discovered this most important of golden rules. On any given bet, in any game of chance, your odds of winning are no more than 50/50. You absolutely, positively, must mechanically and unemotionally accept this reality.
If you are a beginner and you internalize this; and embed it in every decision and action you make as a trader; then I just saved you a bundle of money, and a lot of heartache – Thank me later.
If you are a veteran, and do the same, you are on the road to consistent profitability.