I was away from the mkts for many years after a lot of hard study of technical analysis - which I'm pretty good at - followed by a miserable failure at actual trading. I think one of the first things you realize if you approach trading from that background - intense study of TA - is that interpreting the hard right edge of a live mkt - price action - is a very different animal from analysis of a background chart where you look at static mkt structure. My problem at the time was that I could not reconcile the two. Which I've realized was really a matter of perspective (and knowledge, of course). I've come to understand, mostly because of Adam Grimes and FT71, that the foundation of analysis of the hre of the chart is probability. (I know this is probably the most obvious thing in the world to so many of you, but I'm speaking to those for whom it is not.) The thing about interpreting past price action - market structure - is that (if we're genuinely competent) we can always be sure. Trading live, we can never ever be sure. In fact that simple little truism addresses one of the psychological barriers to good trading, the whole "being right" thing. Which is where perspective and probability come in; if instead of wanting to be right, one can instead simply want to be on the side of the most probable outcome - with the full realization that a "probable outcome is only that, probable - then it kind of lets you off the hook emotionally. (Here we could get into the whole "Plan Your Trade, Trade Your Plan" thing - probably the greatest truism in trading - but that's for another day.) It also gives you the only viable perspective for approaching TA analysis of a live market. There are lots of different ways to consider probabilities; there are statistical studies of inside bars and what-have-you bars and volume and indicators and so on and so on, to infinitude; there are the statistics of trading journals such as trading setups and stops and expectancy and so on and so on... All very important, especially the journal. (Don't trade without it.) But there's also another kind of probability, in my mind anyway, which is both somewhat intuitive and somewhat quantifiable, and is why study of TA and mkt structure is so beneficial. Adam Grimes is very big on probability and statistics but one of the things I like most about him, if I understand him correctly, is that he acknowledges that even if something cannot be statistically quantified that doesn't mean it isn't valid, because that particular "pattern" (for want of a better description, maybe more accurate to say "price behavior"?) is so dependent on context. There are simply too many subtleties and too much noise in the mkts to quantify certain price action. However, if one understands price structure and how the various components interact - accumulation/distribution, consolidation, trend, pullback, swings, support/resistance, springs/upthrusts, momentum, volatility (expansion/contraction), bar interpretation (open, close, high, low, spread), etc. - one can find certain criteria that define a "setup", respective to the context of the current price action and past mkt structure, which one can intuit to have a positive (for your position) probable outcome. (And again, journaling is essential here.) Basically, what we're doing is looking for signals within the noise, something that stands out, a change in price behavior that is telling us something significant may be occurring. This is why we're called "discretionary traders", because everything must be interpreted via the ever-evolving context of that hard right edge. Traders talk about the mkt telling a story, which it most certainly does, but it's a story being written in real time and every next bar is a cliffhanger. You will never, ever have enough information, because if you do, it's too damn late. Because of this, we can only trade via TA according to probabilities.
Excellent post - I am sure there are traders out there that can trade very profitably in a non-statistically driven environment. Personally I just cannot trade without knowing the odds.
It's not because you trade probability, That you can't be wrong with your distribution. And what if it's 60% bullish, 5% Neutral, 35% Bearish ? You may want to be long. But what's the payoff ? Let's say it's +10 bullish and -30 Bearish. Taleb said: you don't eat probability. Don't forget the payoff for each outcome. The best would be to know everything. Its probability and Risk:Reward. Then Kelly choose allocate. But as the flow goes, It's more about known unknowns. If one can estimate a distribution, he has an edge. Same for the risk:reward. You get an edge. If you combine both. You're the master. Otherwise you're a gambler. The real test being live.
Focus less on being right and more on how to manage the trade, right or wrong. This is where your issue is and it's easily seen in the expanded posting that you made.
Focus on both and you are ahead of the curve , the realization that probability is all you have as a trader will set you on the right path .. " Define the Probabilities and Manage the Possibilities for Probability does not Preclude the Possibility " Probability needs to be quantified for if you assign probability intuitively you are nothing but guessing , maths is your friend , sample size your confidence ... Rock on OP for you are on the path Positive expectancy comes from probability , it leads to positive mindset , throw those psychology books in the bin ))
The uncertainty at the hard right edge And always trade within the given (preset / current) context Probability is always 50/50 - you'll groww to understand why over time Good stuff BOC RN
If only it was 50/50. Sometimes it looks like 10/90 against me. XD ... But why do you need context ? If it's to end up with 50/50 ? Context as a conditional A prior that shape, The distribution. Livermore needed context, To either buy or sell. A skeptic (Insufficient Reason), Doesn't care about context. But a physician does. Yeah ... Some skeptic are physician. And skepticism doesn't prone 50/50 for practical matter. You're making a distinction between Ex Ante and Ex Post ? Is it 50/50 ex ante or ex post ? Both ? None ? Certainly Ex Post, Since you're not flipping coins to either enter or exit. Maybe 50% of your trades turn out to be good ones ? Is that what you mean ? If I care about context it's to know that. To know if it's going to be a good / bad trade. Or why does it turned out to be a good / bad one.
No problem. I feel the same when I read you. However I'm always persuaded that I'm missing something.
That's because I am where you want / need to be It'll make sense..., eventually..., if you see it through RN