Probability and Trading

Discussion in 'Technical Analysis' started by sridhga, May 11, 2022.

  1. sridhga

    sridhga

    In trading communities, we often hear things like, " by flip of a coin, you have a chance of winning 50%" etc.

    Is trading really similar to coin flip?

    It is not an even comparison. For a trader to get to close to a coin flip kind of trade, one has to fix a time of the day and shoot the entry order in just one direction every day either long, or, short. Set achievable numbers within a given time line for both Target as well as Stop Loss, and then, this approach becomes more parallel to your coin toss.

    If one sets the target number slightly higher than SL number, one has a loaded coin on hand.

    Still one can lose on transaction charges and slippages.
     
    Last edited: May 11, 2022
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  2. Jack1960

    Jack1960

    No, trading is not a coin flip. You can probabilities to gain an edge.
     
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  3. maxinger

    maxinger

    No No No !!!

    trading is not like flipping a coin.

    Trading is like tossing 2 dice.
    You must score a total of 12 points to consider a win.
    So the win rate is very very low unless you have an edge in trading.

    Trading is also like flipping 10 coins.
    You must have all 10 heads to consider a win.
    So the win rate is very very low unless you have an edge in trading.


    Trading is also like .........


    ___________________________________________
     
    sridhga likes this.
  4. Handle123

    Handle123

    I been trading over 4 decades, I have done much programming to know about backtesting than most on forum. I have had staff doing backtesting a decade.

    Life is a coin flip, everything we do is initially 50/50, it is like crossing the street, we pray that cars will see us. Backtesting gives us a direction, a path and we pray that what happened in past will happen again.

    I have a trading model where each past futures trade has less than 5% chance of success, but due to hedging correctly, model has less than 2% of overall losses. Has nothing to do with time of the day, week or month, nor risk to reward. I have other systems that seldom lose, but bottom line, each is still 50/50 on each trade, otherwise I'd bet half the farm on each signal.

    All these years I have come to conclusion that the game is rigged, you memorize enough patterns your chances goes up, this is teachable with enough time and only 1% make the big money. The way it should be cause all the time that is devoted.

    Lol, Larry David had a commercial during Superbowl that Bitcoin is where your money should be, wonder if he took his pay in Bitcoins...I find it ironic that "Bit" in early USA meant 12.5 cents...
     
  5. xandman

    xandman

    Rethink that Expected Value. Maximum W/L will not be realized with every trade. It's a perfect world that will never play out. There is still no edge.

    The best you can do is optimize the S/L to the expected distribution AND expected skewness of the strategy's return distribution. That's called wishful thinking/option trading.
     
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  6. smallfil

    smallfil

    Thomas Bulkowski has already tested the various patterns and 50% of the time, they fail. Yes, it is a gamble but, you are taking a calculated risk each time you place a trade. If you align your trade with the major trend, your odds of winning in that trade goes up higher. Still, nothing is guaranteed. So, you need stop losses to minimize any losses if you are wrong. Your edge is what your backtest of your trading system has shown you. Your gains must be several multiples of your losses and winning percentages does not matter. Use the expectation formula to determine if your trading system has an edge. Otherwise, do not trade it. This is a game of percentages, the longer you trade, the better the odds you will win out in the end with your edge. Just like a casino, odds will favor you.
     
    sridhga likes this.
  7. KCalhoun

    KCalhoun Sponsor

    As a former statistician for Ford, and a trader who did 41mil in order flow last year alone, I say:

    - it's a coin flip if you suck and have no edge

    - it's multivariate analysis, factoring in strength of pattern, market internals/VIX, time of day etc.

    - edge = price action/tape reading skills plus trade mgmt strategies

    - profitable trading is more about math than chart patterns
     
  8. Trading is like, if you have to ask this question
    Don't trade
     
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  9. i hadnt seen that ad, but he actually didnt endorse the scam. he just mocked it.

    David is worth billions and prob has not a single cent in this garbage
     
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  10. sridhga

    sridhga

    Okay, now let us extend this further. What if I say that a trend has climaxed in one direction on a given time frame and I take a trade after the signal bar on the opposite side formed. assume, my stoploss is the previous climax and my target is twice that distance. Now, is the probability skewed in my favor? What could be the odds?
     
    #10     May 12, 2022