a problem about probability

Discussion in 'Trading' started by 0008, Dec 30, 2002.

  1. Ok, this is what I meant by knowing it is correct and actually understanding it. Ten in a row and the actual tenth coin toss are separate events but what determines which one should control our bet? Intellectually I understand that the tenth toss is 50/50, but there is also a very low probability that the tenth toss will be heads. So which is the better bet?

    Isn't fading the tenth throw basically what selling options premium is all about? We can't know the outcome of any particular day ahead of time but we know the results over time form a distribution curve and we are prepared to take on the risk that price stays within that curve.
     
    #11     Dec 30, 2002
  2. tomf

    tomf

    hehe, actually yes... but getting the chance for a SERIES of 11 consecutive heads is 0,048%
     
    #12     Dec 30, 2002
  3. tomf

    tomf

    You shouldn't bet on the following .. let's say you have 10 consecutive losses with your trades..... because the probability of 11 consecutive losses is so small you load up all your money and go long.

    But now you missed the probability for the trade to be a winner is still only 50% .. and not something like 100% - 0,048% = 99,952% --- whow if that was the case i'd only wait for 10 consecutive losses =))
     
    #13     Dec 30, 2002
  4. 0008

    0008

    If it was the case, we should try to make 9 very small losses, then bet the 10th with all our money and made a fortune! :D

    It simply won't work!
     
    #14     Dec 30, 2002
  5. tomf,

    I have read systems developers advocating something like that. Either wait for a drawdown to start trading the system or only take trades after ,eg, three losing trades or whatever. I tried backtesting that approach but could never make it work. Perhaps it is not statistically sound at all.
     
    #15     Dec 30, 2002
  6. In Vegas, if you get 10 consecutive heads, you get a comp head job.
     
    #16     Dec 30, 2002
  7. tomf

    tomf

    well, interesting approach ... but they miss the actual probabilities.. so I think this hardly will work out.. because the 10th trade can as well be a loser REMARK: afterall it has a chance of 50% to be a winner .. nothing more nothing less.
     
    #17     Dec 30, 2002
  8. I saw a Dilbert once where ratbert called "Edge" on
    Dilberts next coin toss to prove he was psychic
    and it DID land on its edge... hilarious.

    peace

    axeman


     
    #18     Dec 30, 2002
  9. They are equally likely since each is a unique probability series both consisting of 10 independent throws (where the probability of either heads or tails on any one throw was 50/50). The mind wants to believe that "b" is more likely, but it isn't.

    Here's another thought:

    If a friend and I each play one California super lotto ticket and we choose the numbers as follows:

    Friend: 23 12 7 19 29 39, Mega # 18

    Me: 1 2 3 4 5 6, Mega # 7

    Who is more likely to win?
     
    #19     Dec 30, 2002
  10. one time I pick 1,2,3,4,5 at Keno. The waitress shakes her head and says, "I've been working here three years and I've never seen that come up."

    I say, "Then please tell me which 5 numbers come up often."

    (don't forget when you're working probabilities to consider the large number factor. I forget what mathematicians call it. It means what works for large numbers won't necessarily work for a series of 10 bets.)
     
    #20     Dec 30, 2002