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Predictive Systems - what are they?

A predictive system is a system that can forecast what a market will do next.

There is no such thing as a predictive system although we encounter people who claim they can predict the markets. We do not argue with these people because there is nothing to be gained from doing so.

Systems traders make no allowance for predictive systems – they do not need predictive systems and their methods are not based on prediction in any way.

There is not much to say about predictive systems that is useful, except to advise newcomers to commodity trading to take no notice of any claims for prediction.

The reason systems traders do not get involved with prediction is that they test all their system rules in simulated live conditions, as a routine part of the evaluation process.

Signals generated by the rules will demonstrate their potential without any consideration of their probability of being ‘correct’.

Professional systems traders treat all their signals as equal – there is no such thing as a ‘strong’ or ‘weak’ signal. It is either a signal or not and whether it proves to be a ‘correct’ signal will be seen in the tests.

Most signals will not be correct and that is why commodity traders must exploit the minority of correct ones by ‘running their winners’ and cutting trades that exceed their loss limits.

As with Sherlock Holmes, it is fun to read stories about predictive systems but both belong in the world of fiction.


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