Predicting the future of non-linear events such as the financial markets is not only unrealistic, it's unnecessary. Let's assume for a moment, hypothetically, that the markets are completely random. There would still be random sequences of long down and up movements within such a large data set. So, in theory, if one where to devise a system that cuts losses and lets winners run, one could profitably trade a totally random market. So if your goal in trading is to make money, then why predict? Consider that it may be those predictors among us who, through the exploitation of their cognitive biases, allow for trading with a positive expectation. In order to make money as a trader over an extended period you need, at least, a positive expectation or you must be extraordinarily lucky, or some combination. If you think you can predict future prices, please explain why? If not, then where does your edge come from?
The worst thing about predicting is it gives you an internal bias. That bias can, and often will affect your trading usually not to your benefit.
"So, in theory, if one where to devise a system that cuts losses and lets winners run, one could profitably trade a totally random market. " This is false. 2 reasons : - As soon as you set a stop loss nearer than the profit target, you will really have a lower rate of profitable trades. - You pay to trade( B/A spread + commish )
even if true - it's irrelevant in the short-run supply and demand (driven by emotion, etc.) rules the market. it's PEOPLE driven. people are not random in the long run, quality and value run the market. over time, good companies are recognized. the two greatest investments i ever made banked on that . buying GOOG and UARM (now UA) at IPO. trading is not rocket science. and its certainly not random. trading is done by people. even a cursory study of TRADERS (i have trained many of them) reveal that they are a lot of things, but they aint random. that's why you can beat them, and the market
"So, in theory, if one where to devise a system that cuts losses and lets winners run, one could profitably trade a totally random market" That's just too naive. If you assume teh market is random, you can never make a penny. For instance, if one stock is on the, and up trend you sense it. What do you do? If you buy, the stock may go down, go up or stay flat. The probability is 33% each because the market is random. If it goes down 5% after you buy, what will you do? Cut loss? but the the stock may rebound and pick up the uptrend again soon, and you lose a big fish. If the market is random, it has equal probability to go any direction at anytime. How can you make any money? Once you agree market is totally random, you can say bye bye to trading.
What will really bake your noodle later is when you realize that predicting (assuming) a random state is still a (non-random) prediction.
"There would still be random sequences of long down and up movements within such a large data set." but not explained is how the decision to Sell or Buy is made any trade is, in its basic sense is a prediction, a Buy is the expectation Price will rise and isn't it obvious one must use "a system that cuts losses and lets winners run"
Your thinking is badly screwed up. For many reasons, to make money, prediction is simply not a necessity. You, so far, are unfamiliar with the reasons and reasoning, in general. Making money, as a goal, takes some thought. Early in this thought process, for those who are going to succeed, the consideration of edges is promptly dropped. Those who persist in the edge type mentality engender consequences that, over time, drive them from trading. The early emotional consequences lead to physiological consequences as well. Google Lizard syndrome. Also google wizards to see the alternatives. Because people have memories, it is not possible to just clean the intellectual slate and start over. Wrong reasoning leads to irrationalities that become part and parcel of the baggage one carries. You have become a victim of your travail at this point, so your questions are not reasonable anymore. You now reside with the vast majority of people. Too bad.