Its hard to believe that only eight trading days ago, the Dow was at fresh all-time highs. While there were plenty of market skeptics, nobody anticipated such a dramatic and quick fall. Now a return to last week’s levels or a second, equally-violent move down both seem impossible — which of course means they are possible.

So with CNBC and Bloomberg putting on a parade of talking heads to tell us what will come next, let’s take a step back and draw a lesson from the carnage: we don’t know. Sure, we can backtest, consider patterns, support/resistance, and fundamentals. We can determine which move is the most probable, but it never is even close to a sure thing. At the end of the day, we don’t know where the market is going. So next time you hear a talking head telling you we are definitively at a double-bottom, or about to begin another down-leg, remember that they don’t know. You don’t know, I don’t know, and as LTCM taught us, even Nobel prize winners don’t know.

Accept that ambiguity. You can make it a part of your trading by limiting risk.

Related posts:

1. TradeChartPatterns.com is a must-read blog