The issue with forecasting

January 15, 2018 08:20 AM
Industry insights from a 28-year trading industry veteran.

Every year that MODERN TRADER approaches our forecasting issue we confront the conflict between a healthy skepticism of the market forecasting industry and the need to provide readers with actionable information on markets, and finding the best sources to provide it. 

Typically, we like to provide technical trading information that teaches traders techniques and tactics that will allow them to have success trading the markets. For most retail traders, even a great tip on a stock or commodity is worthless if the timing is slightly off, particularly in trading leveraged products. That is why it is best to try and teach methods that are repeatable and sustainable rather than providing forecasts. But at the end of the day, people want to know where successful traders expect markets to move. 

So “Our Experts’ Projections for 2018” provides an outlook on the major market sectors from a distinguished panel of analysts. The value of these projections should be based on your confidence in these analysts’ work over the years. 

Much of the content we provide is based on detailed quantitative studies of markets, so we once again reached out to our friends at EidoSearch to provide a totally statistical outlook in “EidoSearch’s Forecast for 2018." Their research compares recent market activity to similar past performance to provide clues as to where the market is headed. This month’s cover reveals their forecast.

The reason we emphasize the quality of process in forecasting is the incredible pace of change in the underlying fundamentals of markets and in the technology behind forecasting methods.  Included in our panel of experts is Unanimous A.I. that created a digital team of experts that has proven to enhance the performance of a single expert (see “Forecasting by Swarm). Their process combines the best of discretionary and systematic methods of forecasting by creating swarms of market experts. 

We also reached out to PRS Group to provide a global outlook in “Geopolitical Outlook 2018." 

In “Eyes Wide Open" Mark Suster and Trip Chowdhry provide their outlook for vision and voice-activated technologies that we are calling a must-own investment theme in 2018. 

Any forecasting issue must address the remarkable growth of bitcoin and its viability going forward.  It is too early to tell whether cryptocurrencies will be an established market sector or just a memory of an extraordinary bubble, but bitcoin futures have launched on Cboe Futures Exchange and CME Group and Ronnie Moas believes that the 2017 exponential growth in bitcoin is just the beginning (see “Bitcoin’s Growth Has Just Begun). 

What is clear about bitcoin and cryptocurrencies is that they are extremely complex and anyone interested in this burgeoning asset class will need to do their homework.  In “The Bitcoin SegWit2x Hard Fork – case study in a market frenzy,” Joseph Bradley and Scott Hoch describe a unique aspect of this market that traders need to understand. 

The growth of bitcoin highlights the limitations of forecasting.   

About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.