Many talking heads and so-called experts in the business media claim to have some sort of “super power.” They are able to make market predictions! The latest chatter has been a variation of, “The market is overvalued, and a massive correction or even bear market will soon get under way.” Though dozens of people have stated that the stock market has to move lower, they have offered little proof (other than intuition and maybe some historical significance) that this will actually happen.
Market predictions are a losing proposition
Here’s the problem with these types of market predictions: Pundits are either talking up their book or trying to stoke a herd mentality (based on how they are playing the market). They have no problem spouting their opinions, of course. If their predictions are correct, they could reap lucrative financial rewards. However, history shows that they are almost always wrong.
Yes, once in a while these predictions come true. I clearly recall some pundits stating that the market would bottom out in March 2009 (some called it the “generational low”). They were correct, but they were the exception.
Unfortunately, market predictions never stop. If enough people listen the first time – regardless of how ridiculous a prediction might be – that pundit won’t slow down. No matter how many bad calls people suffer through, they will continue to hope that some day the call will be spot-on.
Rather than relying on a guess, follow the market action. It never lies. The actual behavior of traders offers numerous clues on future moves. There are no guarantees here, but you will be playing a high probability game that relies on past behavior, trends and money flows to guide your trading. Technical analysis will tell you where money is going and when – the best predictor of them all.
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