Probabilities and Math

By on May 4, 2014

Probabilities

Trading is a matter of probabilities. No matter how effective you the strategy is, a certain percent of trades will lose.

Traders make a few mistakes.

One of the biggest is to think that a trade is good simply because it looses money, and bad because it makes a profit.

Nothing could be further from the truth.

A trade is good because you followed your strategy, regardless of outcome. It follows a process that will be profitable at an acceptable risk if it’s repeated multiple times. Any individual trade can lose money though.

A bad trade on the other hand follows a process that will lose money. Think of playing roulette in Las Vegas. Just because your bet on Red 18 was a winner actually says nothing about the underlying soundness of the strategy of betting on Red 18. If you continue to do it, you will eventually go broke.

Most traders have a strategy of betting on Red 18 and hoping it works out.

Even if they do have a strategy they are not disciplined enough to stick to it.

 

— Brandon

About Brandon Fredrickson

Brandon Fredrickson started trading in the mid 1990's. He has has helped thousands of traders reach their dream of profitable trading since 1998.

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