why I gave up predictions and bowed to the markets

I have watched and traded every market open going back to 2010. Day in day out, taking upwards of 10 trades per day slowly forming habits and figuring out how to trade along the way.

My trading style was such that I was almost always entering as the market moved against me. That is, buying pullbacks, selling over extensions, and just a general mean reversion style of trading with the occasional trend trade sprinkled in.

When you use limit orders to ‘catch’ price, you are predicting.

“No, price. I am not going to pay what you’re asking right now. You come down to my level because I know at this level you will reverse. The limit price I am willing to pay is the right price to pay.”

Buying the low of the day, buying a pullback that is still moving lower, knife catching, these all involve predictive reversals. These are all cases of trying to outsmart the market. This all suggests the market is wrong.

“It’s just gone too far”

“There’s obviously value here”

“This support has got to hold”

That’s a stressful life to live, especially as a short-term trader racking up many trades per day. You’re forming opinions and making predictions, and about half of the time it’s going to be wrong.

More recently, instead of predicting where prices may turn around I have been analyzing the current “now” state of the market. Forming a list of what is acting well and what is not. My time is spent deciding when I should look to be involved in the markets and when I shouldn’t.

My style has migrated to that of a breakout trader, a momentum trader of sorts. I want to buy things that are working higher right now. I don’t want to predict that they may turn around in a few bars, just let me jump aboard what’s working.

When I reason we are in a good long setup environment, then I want to buy things as they hit new highs, break out of a range, or break a pivot.

Does that mean I will get stuck buying the exact top of a move at times? Absolutely. That comes with the territory of breakout trading and I’ll let my position sizing and risk management worry about those cases.

Overall my days have been much less stressful. I feel more in control and patient than ever before and I believe it’s a much more relaxed and sustainable way to approach the markets. I no longer find myself going out there each day ready to pick a fight with the market. My time and energy is spent simply calculating when I am in a high probability environment that supports breakout trades. From there it’s just a waiting game for a good price action setup to present itself.

This post isn’t meant to argue one approach over the other.

My goal is to simply articulate my experiences of trading certain styles and how I came to decide on an approach that worked for me. I believe there are an infinite number of ways to make money in the markets. Finding something sustainable and consistent for you, yourself is key.

For me, staying calculated and reactionary has proved better than opinionated and predictive.

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Evan Medeiros

Evan is the founder of the Trade Risk. With 20+ years of coding experience and a B.S. in computer science, Evan brings a systematic discipline to investing in the stock market.

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