Is trading about prediction? Or is it about following?

CN
13 hours ago

Is trading about prediction? Or is it about following? This is a classic question and a core thought that many traders repeatedly ponder: is trading ultimately based on prediction or on following?

Let’s break it down.

Predictive Approach: Positioning in advance to capture "cognitive premium"

Logic: Inferring the future direction of the market through macroeconomics, fundamentals, liquidity, and news.

Advantages: If the judgment is correct, one can ambush in advance before the market reacts, capturing a whole segment of a major trend.

Disadvantages: The market often "does not play by the rules," and a misprediction can easily lead to being trapped.

Typical Representatives: Value investors, macro traders.

Following Approach: Price is the only truth

Logic: No predictions about the future, just following the trends that have already occurred.

Advantages: Going with the trend, not opposing the market; as long as the trend is clear, one can make money.

Disadvantages: Often "cannot buy at the lowest, cannot sell at the highest," and can easily get trapped when the trend reverses.

Typical Representatives: Trend traders, technical analysts.

The Truth in Reality: A combination of prediction and following

The vast majority of successful traders actually combine "prediction + following":

First, use prediction to create a framework: for example, macro-wise, believing that the Fed's interest rate hikes may end, leading to a strengthening of risk assets.

Then, use following to execute: enter the market when the price truly breaks through key levels and a trend is formed.

In other words:

Prediction gives you a sense of direction (which market, which sector to target).

Following gives you execution power (when to enter and exit, how to set stop-loss and take-profit).

In summary:

Trading cannot rely solely on prediction, nor can it depend only on following.

Only predicting without execution = Dreamer

Only following without logic = Blind sheep

The true experts are: predicting direction, waiting for validation, following trends, and controlling risk.

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