Teaching You to Trade Stocks 68: The Precise Meaning of Trend Prediction

2007/8/5 10:36:28

I need to go give Ronaldinho and Henry a workout this afternoon, then head to a bar for some fun, so I'm posting the lesson first.

Today let's talk about prediction. What is prediction? What kind of trick is ordinary prediction? And what does scientifically rigorous prediction actually look like? How does this ID's theory become the most precise, most real-time prediction? All of this will be explained here. True prediction is prediction through non-prediction. Of course, this is not the same concept as ordinary prediction. Under the deception and poisoning of the ordinary concept of prediction, many people have that prediction-loving nerve that can't help twitching from time to time. Consider this a treatment for those poisoned by prediction—treating a dead horse as if it were alive, so to speak.

All movements in the market are constituted by the resultant force of the present moment. For example, a few days ago, the sudden suspension of put warrants caused a trend that was constituted by a sudden change in the regulatory component force at that present moment. Since the policy or regulatory component force generally remains constant over at least a period of time, most people forget or ignore its existence. But whether constant or varying with each transaction, the resultant force is always constituted at the present moment. A constant component force, expressed as F(t), simply indicates its value is a constant or a piecewise constant. For any specific t, there is no difference whatsoever in the composition rules and composition results compared to varying components.

However, these constant component forces are not eternally constant—they are often piecewise, with discontinuity points in their changes. Many fundamental component forces have this characteristic. These discontinuity points constitute blind spots in prediction. Of course, conducting fundamental analysis and making extensive examinations of the macro landscape can minimize these blind spots, but they can never be completely eliminated. The existence of this factor alone already makes all precise prediction in the ordinary sense potentially a joke.

More importantly, fundamental factors are also the result of resultant forces. Politics, economics, and other areas—which ones aren't the result of resultant forces? The current world political and economic landscape is the result of numerous resultant forces, and within a single country, it's even more so. Many people with their one-track minds always assume that policy is a god that doesn't need resultant forces, that there's no struggle of various interests within it, and that all results are produced as if by a preset machine. All theories of precise prediction in the ordinary sense are essentially based on this kind of one-track thinking as their premise.

Even more profound than the above, from a philosophical standpoint, prediction itself is a component force. Just as the observer is inherently assumed to be within the observation, all observation results are related to and interfered with by the observer, and prediction intervenes in the predicted outcome in the same way, with the predictor as its premise. Just like the uncertainty principle in quantum mechanics, the greatest principle of any theory about prediction is uncertainty.

Some might say that many people have had experiences of accurate prediction—why is that? In reality, this is merely a probabilistic event. Because the possible situations of a trend, classified by any standard, are finite. Generally speaking, there are just three or four possible situations. And the number of people who like the prediction game, going around proclaiming how accurate their predictions are, outnumber all the people in the world currently being cuckolded. Even a blind cat can catch a dead mouse. Even if someone gets it right consecutively, it still falls within the range of probability—what's so surprising about that? All those claiming their predictions are this or that are just playing such tricks or being played by such tricks without knowing it. As for those who hide their failures and only parade their lucky hits around—well, that's even more beneath contempt.

Actually, prediction is not mysterious at all—even a certain male could handle it (note: this involves predicting unknowable events, and this ID has no confidence whatsoever in its accuracy). The foundation of all prediction is classification—completely classifying all possible situations.

Some might say that after classification, by eliminating the impossible, the last remaining result is the precise one. This is the thinking of a rusty brain. Any elimination is equivalent to one prediction, and each time a category is eliminated, according to the multiplication principle of probability, the so-called precision of the final result becomes less precise. In the end, you still can't escape the trap of probability.

The only correct principle for predictive classification is to make no eliminations whatsoever, but rather to strictly delineate the boundary conditions of each situation. Any classification is essentially equivalent to a piecewise function—you need to clearly determine the boundary conditions of this piecewise function. For example, the following function:

f(X)=-1，X∈(-∞,0)，f(X)=0，X=0，f(X)=1，X∈(0，∞)

The key is to figure out the range of X when f(X) takes a certain value—this range is the boundary condition. In trend classification, the only thing that can be determined is that it cannot take negative values, meaning you classify from [0, ∞), dividing this domain into N boundary conditions according to some classification principle.

Someone might ask, how could a stock possibly go to 0? What's strange about that? A stock being delisted—what does that count as? Never mind stocks, even money can become 0. Tell me, how much were gold yuan certificates worth in 1950? Of course, if your descendants can guard a single gold yuan certificate until the last moment of the universe's explosion, then that certificate will be worth N yuan, and this N will probably approach a terrifying number—so just keep waiting.

Not only are stocks essentially waste paper, but fundamentally currency is also waste paper. Its so-called value range is the same as stocks—0 is equally a possible value. In fact, according to the most precise theory, it can even take negative values. For example, if some dynasty or government decrees that anyone privately hoarding the previous dynasty's or another country's banknotes or stocks shall be sentenced to death, then tell me, aren't those banknotes or stocks negative in value? As for specific stocks going to 0, this happens frequently with warrants.

After segmenting the boundary conditions, you need to determine what operation to execute once each situation occurs—that is, making the operations equally piecewise. Then, hand all situations over to the market itself, letting the market make its own present-moment choice. For example, a few days ago, this ID used the two previous highs and the 10-day moving average for classification, which naturally divided the trend range into two categories: breaking below or not breaking below. Then preset what to do if it breaks below, what to do if it doesn't—that's all there is to it. This is the most essential prediction—prediction through non-prediction, letting the market choose for itself. In the end, the market chose not to break below, so continue holding.

Someone asks, what if it goes up and then breaks below? This is the typical waterlogged-brain random prediction mentality. Any market operator must never fall into this kind of pointless thinking. The market not breaking below is a fact, and your operations can only be based on facts that have already occurred. If it breaks below, then deal with it when the break becomes a fact. In this ID's sense of prediction, you've already preset what to do if a break occurs. If that situation hasn't become a fact, then the other situation has become a fact, and you do whatever that calls for.

Generally speaking, people who love predicting are usually the oversensitive, waterlogged-brain, poor-at-trading, love-to-bullshit types. Those who've been calling the top since 2000 points—if they had to cut off a piece of flesh for each wrong call, they could now pass as fake lamb spine hotpot. Stocks are meant to be conquered, not to be conquered by. To conquer stocks, you can't just talk the talk—you have to actually trade. All operations are essentially results based on different piecewise boundaries; it's just that each person's piecewise boundaries differ.

Therefore, the question is not about predicting anything, but about determining the piecewise boundaries. For example, using the previous two highs for classification was meaningful a few days ago, but using them now would be meaningless. Now you can completely use the moving average system for classification, which is why this ID has been emphasizing the principle of the 5-day, 5-week, and 5-month lines. With the piecewise boundary principles in place, just operate accordingly—what else is there to predict? What is there to predict?

The history of global financial markets has continually proven that truly successful operators never predict anything. Even when they bullshit on media, it's just to use the media. True operators all have a set of operating principles—following these principles is the best prediction.

So, are the fractals, strokes, line segments, hubs, trend types, buy/sell points, etc. in this ID's theory predictions? Yes and no. Because essentially, this ID's theory is the best set of piecewise principles. This set of principles can give piecewise signals at any time as the market changes in real time. Following this ID's theory, at any level there is an eternal piecewise rule: X = buy point, buy; X = sell point, sell; X falls between buy and sell points, hold—and what you hold depends on whether a preceding buy point or sell point hasn't appeared yet: if so, it's stocks; otherwise, it's cash. According to the piecewise function method, this ID's theory has this most fundamental principle of piecewise operation.

Therefore, if you truly study and operate according to this ID's theory, there's no need to consider other systems, or rather, all other systems can only serve as references. When this ID analyzes the market, the frequent mention of moving averages, high-point trendlines, and the like is just to accommodate those who haven't started studying this ID's theory—it's not because this ID thinks those classifications have any special significance. This ID's theory naturally gives the piecewise function for present-moment operations at any time, and these are given by level. That's why this ID repeatedly emphasizes: first choose your operating level. Otherwise, if you're meant to be operating at a large level but get shaken by small-level fluctuations, that's a problem.

Giving the piecewise function is giving the most precise prediction. All predictions are given at the present moment—this is true prediction. This kind of prediction needs no probabilistic nonsense, nor any bullshitting or excitement about "successful predictions." The success of this prediction happens at every present moment. If you need to bullshit and get excited about every single one, your brain has long since rusted over. As the saying goes, wild geese crossing the azure sky, wind rippling the green water—which one is your true face? Meditate on that!