I came across this method of evaluating how successful a prediction may be in a book called "The Gift of Fear" by Gavin de Becker. Even though it's not a trading related book, since it is about fear, some parts of it actually could be applied to trading. Has anyone else read this book ??? The method can be applied to any type of prediction, although the focus of the book is to predict violence. For now, I will just try to explain the method from the book here, since it is kind of long. Then later I will add some comments relating the method to trading. You start by answering the following 11 questions, then each is given a point value & the points added up to see how successful your prediction may be. 1. Measurability of outcome How measurable is the outcome you seek to predict? Will it be clear if it does or does not happen? 4 - obvious, clear 3 - discoverable & shared definition 1 - discoverable, but fluid or inconsistent 0 - not measurable / undiscoverable 2. Vantage Is the person making the prediction is a position to observe the pre-incident indicators & context? 3 - direct observation / perspective view 2 - indirectly through some medium / proxy view 0 - obstructed or no view 3. Imminence Are you predicting an outcome that might occur soon or at some remote time in the future? Ideally, one predicts outcomes that might happen while they are still significant. Events happening sooner rather than later have fewer intervening influences & conditions. 4 - imminent 2 - foreseeable 0 - remote 4. Context Is the context of the situation clear to the person making the prediction? Is it possible to evaluate conditions, circumstances, relationships & events? 3 - fully revealed 0 - concealed 5. Pre-incident indicators (PINs) Are there pre-incident indicators that will reliably occur before the outcome predicted? Ideally there would be several reliable PINs but they must also be detectable. 5 - several, reliable, detectable 3 - few, reliable, detectable 0 - unreliable or undetectable 6. Experience Does the person making the prediction have experience with the specific topic involved? It is better to have experience with both possible outcomes of the prediction. 5 - extensive with both outcomes 3 - with both outcomes 2 - with one outcome 0 - elemental / partial / irrelevant 7. Comparable events Can you study or consider outcomes that are comparable - though not necessarily identical - to the one being predicted? 4 - substantively comparable 1 - comparable 0 - not comparable 8. Objectivity Is the person making the prediction objective enough to believe that either outcome is possible? People who believe only one outcome is possible have already completed their prediction. 2 - believes either outcome is possible 0 - believes only one outcome or neither outcome is possible 9. Investment To what degree is the person making the prediction invested in the outcome? 3 - invested in outcome 1 - emotionally invested in outcome 0 - uninvested in outcome 10. Replicability Is it practical to test the exact issue being predicted by trying it first elsewhere? 5 - easily replicable 2 - replicable by sample or proxy 0 - impractical or not replicable 11. Knowledge Does the person making the prediction have accurate knowledge about the topic? 2 - relevant & accurate 0 - partial & inaccurate Scoring 22 or lower - not reliably predictable, a matter of chance 23-27 - low likelihood of success 28-33 - predictable 32 or higher - highly predictable I welcome your comments about this method as it relates to trading, or just in general.
I read the book sometime ago. It is a book I have given as a gift several times to women, Imo it is a must read for them because it should help them deal with the nut case men they run into in their life. In regards to trading and how it applies I say this. It is a basic lesson in intuition and how women use it men won't. We both have intuition, men ignore it. Trust your instincts because the instinct is based on a learned experience which remains in our subconscious. You can't trade with your gut but after practice and repetition and experience, the bells and whistles go off and you need to have confidence and ACT because your instincts are correct. They are based on something and this book defines that something.
That's a good summary nutmeg (good to see you on other threads aside from Jokes LOL - my favorite thread LOL) As far as the elements of prediction as applied to trading, my guess is that the majority of outcomes would be "a matter of chance". I am going to apply it today to a couple of trades: an opening order & then just a regular scalp. For these examples, the prediction will be something like this...will this stock go up/down 10 cents or more within 5 minutes. I'd be interested to know if some people get a result of "predictable" or higher & why. Maybe you have insider info., a lot of experience, trade longer term, or some other reason. Good trading (predicting)
Thanks. I'd also like to add a comment re the list. It is a good filter for news. If you used the list to discern the authors intent on what he has written, I'm sure not many authors would score high. If the test is designed for a personal inventory but we apply it to what we are reading, watching, there becomes a clarity to motive. Suppose we applied the checklist to Cramer while watching an edition of mad money. The results might be as expected.
Interesting scoring system. My take is that most newbie traders with some trading experience are in the 23-27 range. Good traders that are mostly profitable are in the 27-32 range. Great traders are above 32.
Those look like good ballpark figures based on personal trading experience syswiz. Here is what I came up with for an opening order this morning. I was filled long on GE. So the prediction is: will GE go up 10 cents or more within 5 minutes?? 1. measurability = 4 (it will be obvious if this happens or not) 2. vantage = 2 - (since I am not at the post on the floor of the NYSE, but I do have a pretty good realtime trading platform) 3. imminence = 4 (it is a short-term trade) 4. context = 2 (I can watch the overall market & some other stocks & indicators, but not everything) 5. pre-incident indicators = 3 (volume, tick, futures, tape etc) 6. experience = 4 (I have been trading this strategy for a long time) 7. comparable events = 4 (I have recorded results for these trades many years) 8. objectivity = 2 (I believe either outcome is possible) 9. investment = 2 (if I had a similar long-term position I would rate this higher) 10. replicability = 0 (you can not test this exact trade since it is happening right now) 11. knowledge = 1 (I read the news etc. but cannot know everything, since I am not on the floor or an insider) So the total is 28 if I added it right = predictable That's about what I would think for opening orders once you have some experience.
In the book the way it is described is that women call it intuition & men call it gut instinct...same thing.
Yes, it may be referred to as gut instinct from one incident to the next. But over time, and with the consumption of enough beer, the cumulative effect leads to something more closely resembling a gut reaction.