Term: A PRIORI

A Latin phrase meaning “known ahead of time” or more precisely, known without any empirical evidence or experience. The classical example would be a mathematical truism like 1 + 1 = 2. This truth can be concluded without any experience or evidence. A priori is the opposite of “a posteriori” which means known with the advantage of experience or evidence – literally “known afterwards”. In the stock market, private investors are in the business of predicting the future. When you buy a share you do so because you expect it to go up – based on your study of the share’s price charts, its financials and your general awareness of the economy. But you could be wrong so your prediction is “a priori”. Once it has gone up your experience is “a posteriori”. The problem, of course, is that experience or evidence does not always work as a method of predicting the future. With all the knowledge and experience in the world, you will still make mistakes in the share market – and that is why you must have a strict stop-loss strategy.

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