I have heard even seasoned traders saying this: "(a)Hey, no one can predict price moves, (b) it's 50-50 chance of winning & losing".
I agree with part (a) but part (b) is not true and it's worse than 50-50, chances of failure is above 60-90% in any given trade for a naive trader!
here is the reason.
Every trade has atleast 5 bare minimum attributes:
1. entry location
2. exit location
3. leverage used
4. Risked amount or SL distance
5. Time duration of holding.
Dabbling with above 5 variables will result in myriad of unique strategies.
Market at any given time will benefit only one group of strategies and all other will miserable fail. For eg: in trending market all counter trend scalpers and range traders are screwed and vice versa.
So let the number of possible strategy group be 3-5 I.e trending up, trending down, choppy whipsaw, ranging market. Market rewards only one strategy group at any given time and punishes all other strategy group...
So if you are blindly picking 1 out 3 what are your odds of picking right strategy by blind chance: it's 1/3.
-----------
This is just a bare minimum argument, in real trading world it's not just 5 variables per trade, there are dozens of variables (eg: Type of instrument you can't trade options as futures, risk structure of trades i.e scaling in or all in all out trader?, season of the trade eg: option expiry or start of month? and finally blackswans).
What are the odds of consistently picking right strategy group? if its 50-50 per trade, trading will be 100 times easier! It's way worse than 50-50... for naive trader it's about 90% loss chance-10% win...A naive trader may feel he is smart esp. when markets are strongly trending but when he sits down to trade as day trader suddenly his chances of screwing up his own account grows to 95+% over time(say 3 months)!
-----------
The idea of 50-50 comes from coin tossing experiments which have only two outcomes.
Equating trading to coin toss is simplistic and wrong, may be to demonstrate simple concepts it will help but reality of trading is way richer than this simple coin tossing model. Trading is an open dynamic system which can't be computed where as all academic probability models assume it as closed static lab experiment.
I agree with part (a) but part (b) is not true and it's worse than 50-50, chances of failure is above 60-90% in any given trade for a naive trader!
here is the reason.
Every trade has atleast 5 bare minimum attributes:
1. entry location
2. exit location
3. leverage used
4. Risked amount or SL distance
5. Time duration of holding.
Dabbling with above 5 variables will result in myriad of unique strategies.
Market at any given time will benefit only one group of strategies and all other will miserable fail. For eg: in trending market all counter trend scalpers and range traders are screwed and vice versa.
So let the number of possible strategy group be 3-5 I.e trending up, trending down, choppy whipsaw, ranging market. Market rewards only one strategy group at any given time and punishes all other strategy group...
So if you are blindly picking 1 out 3 what are your odds of picking right strategy by blind chance: it's 1/3.
-----------
This is just a bare minimum argument, in real trading world it's not just 5 variables per trade, there are dozens of variables (eg: Type of instrument you can't trade options as futures, risk structure of trades i.e scaling in or all in all out trader?, season of the trade eg: option expiry or start of month? and finally blackswans).
What are the odds of consistently picking right strategy group? if its 50-50 per trade, trading will be 100 times easier! It's way worse than 50-50... for naive trader it's about 90% loss chance-10% win...A naive trader may feel he is smart esp. when markets are strongly trending but when he sits down to trade as day trader suddenly his chances of screwing up his own account grows to 95+% over time(say 3 months)!
-----------
The idea of 50-50 comes from coin tossing experiments which have only two outcomes.
Equating trading to coin toss is simplistic and wrong, may be to demonstrate simple concepts it will help but reality of trading is way richer than this simple coin tossing model. Trading is an open dynamic system which can't be computed where as all academic probability models assume it as closed static lab experiment.
Last edited: