With command $3 we have already seen that you cannot predict the future. At best you can foresee the future. By calculating the probability of the up, down and sideways scenarios for individual securities that you trade, you can also calculate the gap between what you foresee and how reality unfolds. If this gap is too big for any given security, stop trading it.
In our trading strategy to be exposed to risk for as long as possible, per command $6, we select stocks of which we are very able to foresee how the price of the stock will develop. We don’t know whether the stock will rise or fall, and we really don’t care as our trading strategy takes all three scenarios (up, down and sideways) into account.
What we do care about is that the stock behaves pretty much in line with what we foresaw. While we make a bit more money if the price suddenly jumps, we dislike it as we did not foresee the jump. The more unforeseen movements the stock makes, the less we like it. If the stock falls below our foreseeability threshold, we stop trading the stock.
Now you may ask yourself are there any stocks that are so foreseeable? The answer is yes, but they are rare. Sometimes these are stocks that are also on other people’s radars. But most of the time these are stocks you have never heard of before. Nevertheless, those stocks make easy money, because foreseeability translates into profitability.