Is the medium-term market prediction a coin toss?

There are any number of ways to tell us what the market is going to do next.

  1. We could consider market cycles. This is a big favourite of Larry Williams. And within reasonable tolerances he does seem to get it right.
  2. We could use fundamentals. Which is looking at the books to determine a companies economic well-being.
  3. We could use technical analysis. Which doesn’t care one bit about the ‘value’ of a company but uses charts to show predictable patterns.
  4. We could listen to the, more often than not, short-term media comments, and panic!

We all favour one method or another. I’ve tried all of them, but I do stay well away these days from number 4.

The current probability of the market going significantly up or down, over the medium term, is 50/50. That is the same as betting on a coin toss. I wouldn’t do it.

(….okay, I do take trades that have no better than a 40/60 probability of success. But that is because the reward to risk is so good. And if we consistently play the 40/60 rules correctly, and let them run, when we catch one…. voilà.)

As a trading style, I favour the very short-term stuff, it’s based on technical analysis, and it is how I manage the slow trader fund. I also favour the very long stuff (30-years plus) based primarily on fundamentals with the buy timing helped by technical analysis.

Everything in between, I leave to the coin tosses.

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