Trading - A Probability Game - 0 views
started by Currin Strong on 26 Sep 13
started by Currin Strong on 26 Sep 13
Start a New Topic » « Back to the Advantages And Disadvantages Of Affiliate Programs group
started by Currin Strong on 26 Sep 13
Because it can not be achieved fact: Trading isn't about guessing the near future.
Should you accept this fact, then it's easier to just take losses without destroying your self-esteem. You take a trade, you accept that you do not know what will happen next. You have no expectations that trade may develop into a success. If you have an opinion about religion, you will likely require to research about the infographic. Your only hope is that some thing can happen. If you are interested in literature, you will possibly want to discover about Ortiz Alexandersen's Real Estate Discussions Page.
So just how would you make money not knowing what'll happen next? You treat trading as a probability game. Listed here is a typical example of a possibility game:
Let's say I move a dice:
- I pay everytime to $1 I play
- then I win $2 Basically throw a 3, a 4, a 5, or a 6. If I roll a-1 or a 2 then I don't get anything.
Clearly, every-time I roll the dice I have no idea what the results is going to be. But I understand that for every single roll chances are in my own favor. In the long run, I'll win 4 situations out of 6, meaning that I will spend $6 to win $8. To research additional information, we recommend you check out: next. I'll be a consistent champion if I play long enough.
In numerical terms, your expected get every time you play is
(4/6) X $2 = $1.33 meaning $0.33 profit (you pay $1 to-play)
Another version of this game might be if you roll a 4, a 5, or a 6, and nothing if you roll a 1, a 2, or a 3 that you get $3. In this instance the expectation every time you play will be
(3/6) X $3 = $1.50 meaning $0.50 profit in the long haul
So how do we translate this into trading?
Each time you roll the dice, you don't know the outcome, the same as for each individual industry. But everytime you throw the dice, you know chances are in your favor to make money, and you'll make money if you play long enough.
Therefore for every industry you enter, you must know that the odds are in your favor to make money. As you is able to see in the 2nd case, it generally does not mean that you have to win more frequently that you lose. In addition it depends upon how much you win when you win and how much you lose when you lose.
How can you put the chances in your favor?
You have to build up a trading edge using technical analysis, fundamental analysis, industry internals, etc. You have to have a number of variables that has to be present before you enter a business and often use exactly the same set of variables. Your side is your technique to enter and exit positions and must be well defined in your trading plan.
All that may be defined as follows:
- For each trade you take, you do not know the end result, you recognize that anything can happen, and thus you've no expectation for that trade.
- You believe in your trading strategy, that's you believe that for every single trade you just take the odds are in your favor.
- You believe that the result over a number of trades is relatively certain and predictable.
To return to the dice example: will you get mad or feel foolish when you don't throw a winning number? No because using a dice you accept the fact that you can't know the end result. You've no expectation. Use the sam-e idea to-your trades and keep your self-esteem.
This concept of treating trading as a chance game made a big difference in the way I feel about losses. I learned all about it in 'Trading in the Zone' by Mark Douglas. I strongly suggest this book.
If you have a great trading plan, with a technique to enter and exit positions, then an effective trade is one that you followed your plan, not necessarily a profitable trade.
And remember, you will never know if your approach works if you do not abide by it.