Trend Lines and Superforecasting

Friday, 12 July 2019.

Trend Lines Chart
EURUSD Daily Chart. Forecast 1.1360 @ 17:00 cet Friday 12 July.

I’ve just finished reading Superforecasting by Philip Tetlock. The title alone should be an irresistible hook for any trader, sadly experience and research shows that Day Traders are loathe to study and rather spend their time backtesting arrays of technical indicators.

Anyway, in the spirit of Superforecasting I’m going public with a forecast (see chart caption above) and at the same time posing a question about Trend Lines. First, the question.

In this chart the dashed line is a strict “higher lows” trend line, that hasn’t been fully tested. The dotted trendline skips the first low, a hideous spike that must have been caused by some rogue economic data or rumours, and forms a nice channel with the solid line above. The question is, “is the dotted line or the dashed line the correct one?” It’s a question of strictness that a hedgehog will answer without hesitation, but a fox (like me) has to write a blog post about it. Foxes and Hedgehogs are explained in Superforecasting.

The dotted line poses a problem, is that recent overshoot acceptable or does it indicate the up channel is broken? Bottom line, Long or Short here?

Getting back to the public forecast. I entered long 1.1243 on Wednesday. I could have closed yesterday and taken the rest of the week off. However, my forecast was for 1.1360 at 17:00 cet on Friday, my inner hedgehog is telling me to wait it out. Yesterday’s spike is really not helping, replies the fox. The main driver for my outlook was Powell’s testimony on Wednesday, the implications are still filtering through.

I haven’t done the full Brier score bit, I’m still new to Superforecasting. In the meantime, in the spirit of Niall Ferguson’s warning about impending hyperinflation, I’m moving my forecast to next Friday – it just needs more time, I’ll revise the target price later.