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Forecasting and Trading, Nadeem Walayat's Trading Lesson's

InvestorEducation / Learning to Invest Oct 25, 2009 - 12:56 AM GMT

By: Nadeem_Walayat

InvestorEducation

Over time one learns the important difference between forecasting, which is scenario building and trading, which is reacting to price movements in real time. Why forecast ?


There is the incentive to stay attuned with the market mentally because the act of trading is not intellectually stimulating it is more akin to repetitive action akin to a martial art or sport where practice rules supreme, whereas forecasting is intellectually stimulating and aimed at giving insight into the mega-trends against which major corrections, even bear markets (with hedging) can be ridden out i.e. the peak oil mega-trend, the climate change mega trend, the population growth mega trend impact on agri-food's, the fresh water mega-trend and the emerging asian middle class mega-trend on consumer consumption and innovation. Therefore the primary purpose of forecasting is to arrive at a firm conclusion in the present that enables one to commit to a trend without which all we would be doing is looking back at what has happened and wishing we had par-taken in a particular investment trend.

However those that blindly believe their forecasts to be absolute after the fact i.e. even if they are going belly up are setting themselves up for an inevitable fall, as all forecasts at the end of the day are only educated best guesses at a particular point in time and must have a mechanism to negate the scenario's. Ironically recognising this fact can lead to the generation of more accurate forecasts as one is not psychologically committed to ones forecasts which is the downfall of many analysts that cling on to trends that have long since been negated by price action as we have observed this year with the stocks bull market rally, which IF a new bear market soon starts will conveniently be erased from the record ;)

Source: http://www.marketoracle.co.uk/Article14482.html

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 400 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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