Try John Allen Paulos' "Innumeracy". Interesting book on common misunderstandings about probability and events. Not directly related to trading but the concepts and explanations can lend themselves to trading. You should conduct your own studies on price deviation and probability of reversal. I gather you won't since you were too lazy to even do a search on Borders.
That is not necessarily true. No trader knows what the odds of any trade are. I don't think anyone even knows if there is any such thing as odds for a specific trade. When you buy a car you make a bet that it will last a certain amount of time longer than a cheaper brand. But do you know the odds of that happening? When you get up in the morning you place a bet that the day will be profitable in some way, but do you know the odds of that? When you don't trade you make a bet that an average trade would be unprofitable.
lobster, we know the odds offered. We know that the odds of it moving 3 in my favor as opposed to 1 against me pay 3 to 1. We will take that bet if we believe the correct odds paid are in fact out of whack due to our belief that the outcome will be non random, thereby beating the correct random odds the market pays.
uhh...lazy equals asking for a book recommendation...makes perfect sense to me... somebody had a rough week... thanks for the recommendations...just trying to get started somewhere (trying to get an "edge" on my reading list...LOL) before i get caught up in a ton of books.
Very good points. Never thought of it that way. Kinda like "past performance doesn't guarantee future results." I guess my point was that a moron would put on a trade when he doesn't have conviction that he had an edge. Sometimes I do that...then I feel like a moron afterwards. Like when you get caught up in emotion or get greedy... As for the car analogy, how about this - I would buy a car based on repair histories, knowing that over the long run, I'm going to spend less keeping a beamer running than a jag. In that sense, I would be looking to be on the right side of the odds.
I think there is a difference that is important to understand. There is the reward to risk ratio, e.g. risk $1 to make $3 and then there is the probability/risk of being right/wrong in your trade. For example you may have an option spread that has a 3 to 1 rr and a 70% probability of being successful - two totally different probabilities, but both relevant to the particular trade. ra1
if you are a mm in options you are not in control, you are the casino waiting for the customers to place their bets, you have your theoretical prices and you put your spread around it. Question is however if your theoretical prices are right, because there is one input (vol) that you can not be certain off. So you try to measure supply and demand of vol and adjust vol as you go along. I know there's a bit more to it, but basically that's what you do. The option model of Black and Sholes is based on probability distribution where vol is a measure of variance on a yearly basis. That's pure statistics.
Statistics for Business and Economics Statistics and Probabilities for Scientists OR, Books on Game Theory are good too. Although they are hard to understand . So I'll start with Statistics and then go to Game Theory.