Remove Certainties from your Analysis

Let’s take a brief look at Monday’s daily chart from the E-mini Nasdaq futures (NQ). And let’s ignore any hindsight analysis, given that you possibly already know the outcome of this price sequence. The chart and subsequent discussion occurred at this point here (as did the writing of this post):

And now, a comment that followed in email discussion with a trader:

• “The collapse is going to be epic if price breaks the 2/24 low”

My response:

• “Maybe. Maybe not.”

This wasn’t the main point of our email Q&A. Just a side discussion.

But it’s a type of comment that concerns me.

There are NEVER any certainties.

And becoming fixed in mindset, expecting one particular market outcome, can be absolutely devastating at those times when orderflow takes another path.

So catch yourself whenever you find yourself expressing a certainty in your market analysis. And correct it.

Here’s a simple technique to help shift your thinking from certainties to probabilities.

• Add a degree of probability to your analysis.
• And NEVER make it more than 70%.

“The collapse is going to be epic if price breaks the 2/24 low… maybe 70% probability.“

This forces you to accept that, while 7 out of 10 times you might be right, there is still a 3 out of 10 chance that something else might occur.

And so you’d best be aware of what that might look like. And how to quickly recognise it and respond.

You don’t need any great accuracy in your statement of probability.

• 50/50 for no real expectations.
• 60/40 for a slight preference for one outcome over another.
• 70/30 for those slam-dunk, guaranteed bet-the-farm opportunities.

But never 100%.

Remove certainties from your analysis.

Add a degree of probability to any statements of analysis or expectation. And NEVER make it more than 70%.

This forces you to accept that, while 7 out of 10 times you might be right, there is still a 3 out of 10 chance that something else might occur.

And so you’d best be aware of what that might look like. And how to quickly recognise it and respond.

Happy trading,

Lance Beggs

Related Articles:

• Nothing “Always” Happens
• Applying a Degree of Confidence to Price Targets
• Arguably the Most Important Part of Any Analysis