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# odds and probability

Discussion in 'Trading' started by Gordon Gekko, Sep 28, 2002.

1. ### Gordon Gekko

i'm sure i'm not the only one here who gets confused by this stuff...

http://mathforum.org/library/drmath/view/56495.html

Date: 02/06/97 at 15:44:00
From: Anonymous
Subject: Odds and probability

What is the difference between odds and probability? Or is odds a slang term for probability?

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Date: 02/06/97 at 21:41:26
From: Doctor Wallace
Subject: Re: Odds and probability

No, odds is not slang for probability. There is a difference.

A probability is a number from 0 to 1 inclusive, usually expressed as a fraction, which is the ratio of the number of chances of a specific event to the total number of chances possible.

For example, if I have 4 marbles in a jar, 3 red and 1 blue, then the probability of drawing the blue is 1/4. There is one chance of a blue marble and 4 total chances (marbles).

Odds are expressed as the number of chances for (or against) versus the number of chances against (or for). So, since there is 1 chance of your picking the blue, and 3 chances of your picking red, the odds are 3 to 1 AGAINST you picking the blue. For odds in favor, we just reverse them. The odds are 1 to 3 IN FAVOR OF you picking the blue.

This can be a little confusing, so I'll say it again. If you express
odds as AGAINST, you put the number of chances against first, versus the number of chances for. If you express odds as IN FAVOR OF, you put the chances for the event happening first.

Note that this does NOT mean that the probability is 1/3 for or
against in the above example.

To convert odds to probability, we have to ADD the chances. So, if the odds against a horse winning are 4 to 1, this means that, out of 5 (4 + 1) chances, the horse has 1 chance of winning. So the PROBABILITY of the horse winning is 1/5 or 20 percent.

I hope this helps. If you need more assistance, don't hesitate to
write back!

-Doctor Wallace, The Math Forum

2. ### easyrider

Don't worry about it. Seriously G.G. you are over analyzing this business.

3. ### FasterPussycat

GG has taken over this board every third post i open is his.

...someone start a new poll

4. ### aphexcoil

I have competition!

5. ### lescor

That's about as clear an explanation as you can get, and for most traders I would think it's a pretty simple concept to grasp.

6. ### Gordon Gekko

i wasn't saying the explanation is not clear. i posted it because it IS clear. until i read that, i didn't really understand this stuff...so i posted it to help others. i'm not looking to debate it or anything.

7. ### Gordon Gekko

i'm determined and persistent

8. ### Gordon Gekko

that may be true, but why are so few people making a lot of money? and why are so many losing? i'm trying to find out. wouldn't you like to know how the best traders are doing it?

9. ### aphexcoil

That may be like asking why everyone isn't making a killing by being an actress, singer, CEO, etc.

The simple fact is that a lot of people simply can't do it. The biggest reason is most likely due to emotional / psychological ones and less so because of a poor system.

If everyone was successful at trading, then nobody would bother since the rewards would be far less for those who eventually do master it.

That's just my take on it. Then again -- what do I know!

ET's Whipping Child

10. ### gnome

Gee, GG...

I wouldn't try to tell anyone how to trade as I have knowledge of only what I do. In general, however, I think many traders are floundering because their approach is flawed. I think a trading method should include 3 critical elements: