“Life is not linear; you have ups and downs. It’s how you deal with the troughs that defines you.” – Michael Lee Chin
We have said for some time that if you want to learn to trade, you need to learn to think in a non-predictive manner. Despite what financial media would have you believe … you can dump any and all predictions, and still make a wonderful living from trading the markets.
But why is it impossible to predict?
Because the markets are a complex system. Like the weather.
There are a million variables that can occur now, and in the future that the most detailed mathematical model cannot account for. The system is simply too complex. Which is precisely why you see that the Euro Weather Modeling system, and the United States Weather Modeling system cannot account for weather events with any degree of precision, more than a week into the future. And often, those models will give you completely different answers on what the weather will be in even a few hours time. Because it’s trying to track and adjust for changes on a complex system.
The markets are no different.
The following video on complex systems explains this in a clear, and simple manner.
And please keep in mind that when the author refers to evolution, they are referring, not to the Theory of Organic Evolution, but rather … the variable change that occurs and evolves within complex systems (such as the stock market evolving from a state where traders were calling in orders through the windows of Wall Street in 1906, to the current state of electronic trading).
As you watch the video, please remember: The markets are complex … complex entities. With myriads of moving parts. The complexity of markets, makes the prediction of their behavior … impossible.
(Video Included. If you’re seeing this entry elsewhere and cannot play the video? Click this link to go to the exact video entry …)