The Three Most Important Words in Market Forecasting

“In this market…”

Whenever I am asked to make a prediction, I start or finish with “in this market.”

Although I look at longer term charts I do not trade off of them. I look at long term charts only because I know other people look at them.  Much of technical analyst, the predictive part, is a self fulfilling prophecy.  As far as analogues, they are a look into a psychology of a market. Both are useful but they are only part of the building process. (The side effect of more building is there is a greater chance at bias.)

I can not and will not discount the psychological benefits of studying longer term charts or analogues as long as the limits are understood. A firm understanding of the limits is important in every type of analysis and probably more important than their benefits.

Context is always king. The longer the term chart, the more context disappears. A chart records it does not always tell a the story.  I immediately cringe when someone brings up a 50 year chart as a reason for trade that is shorter than 50 years.  (Exaggerated for effect).  The predictive power of a chart is diminished the further away it gets from representing “what is most important”.  The further out you get, the more variables you collect that are not necessarily discernible or predictive. For example, the market did x but at that moment the most important factor was y. A long term chart removes the y.

If you are going to predict, do it safely and use “in this market”.

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