Predicting the Future?

I have just returned from the Traders Expo in Dallas where I was invited to speak on adjusting the iron condor. In one of the talks I attended, the speaker surprised me with his audacious assertion that he can predict the value of the S&P 500 to the day! Wow! He even asked the audience at one point what you could do if you could read today the Wall Street Journal as it would be published tomorrow. Well, I think I could make money if I had that advance copy of the newspaper, but this reminds me of one of the Back To The Future movies, not reality.

 

Sales Hype vs. Reality

Al of us have different talents, but sales isnt one of mine. So I probably err on the side of boringly presenting all of the details of a trading strategy, including all of the ways it can go south on you. But some, such as the speaker I heard, are bordering on behaving like con men with their spectacular claims. Can I predict where the market is going tomorrow? Certainly not! If I were asked to simply predict whether the next trading session would end up as a up or a down day, I might be able to be right more often than not — but I am skeptical of my ability to even do that successfully over the long term. Predicting the S&P 500 index level for next week or next month is akin to going to a palm reader, in my opinion.

But all traders have to acknowledge that, in a very fundamental way, many, if not all, of our trades are based on our judgment of the direction for the underlying stock. We are bullish or we are bearish and we probably have a time frame for our prediction. In that sense, we are often trying to predict the future. The trade recommendations I make for our clients in Dr. Dukes Trading Group are directional trades; in every case, I have made a price and time prediction. Over 76% of my recommendations have been profitable trades, and we are up 61% since this service began. I am proud of that record. However, in many of those cases, the stock price didnt behave just as I predicted, but I had left enough safety margin to achieve a profit anyway. So while I remain skeptical of some of the claims of predicting the markets future direction, all traders are in that prediction business at least to some degree.

How About Making No Predictions At All?

There is a class of options trades, known as delta neutral trades, that can be used to generate cash without predicting the markets direction. It is true that you can use the delta neutral trades when your prediction is for a sideways stock price direction. But I use these strategies every month with a trading system of rules that reacts to whatever the market does each day — I make no prediction for the future. But, as you might expect, this isnt a trivial trading strategy. It requires hard work, specialized knowledge, practice, and strict discipline. If you are interested in learning how to trade delta neutral, sign up for my new series of classes, Delta Neutral Options Trading. These classes will be offered in a nine week series, starting the week of July 5. More information is available on my web site. These strategies are being used in the Flying With The Condor ™ trading advisory service and it is up 23% this year.

Upcoming Webinar

Our next free webinar entitled, Adjusting the Iron Condor in Bear Markets is scheduled for June 29 at 8:30 pm. Register today.