50/50 ?
- Thread starter easyrider
- Start date
Pretty picture, yeah the numbers do sit on each other like a pyramid. That is a cool and creative answer and one I hadn't thought of, though not the one I had in mind.... I'll throw out another hint: the sequence provides a useful shorthand for quickly determining your new average price.
p.s: random entry discussions have always left me cold and here is why: the main thing that a skilled trader brings to the table is the ability to find and exploit asymmetrical/favorable probability distributions, i.e. occasions where there is a temporary 'bias window' that is most definitely not 50/50. That skill, in a nutshell, is the meat of the trader's job and the only part of trading that is tough (impossible?) to replicate without experience and skills. All the other stuff, discipline aside, is essentially just straightforward mathematical functions.
So, while making money with random entries is theoretically possible, to me it's like trying to play golf in the rain- you don't play golf in the rain, you stay inside 'til the sun comes out again.
p.s: random entry discussions have always left me cold and here is why: the main thing that a skilled trader brings to the table is the ability to find and exploit asymmetrical/favorable probability distributions, i.e. occasions where there is a temporary 'bias window' that is most definitely not 50/50. That skill, in a nutshell, is the meat of the trader's job and the only part of trading that is tough (impossible?) to replicate without experience and skills. All the other stuff, discipline aside, is essentially just straightforward mathematical functions.
So, while making money with random entries is theoretically possible, to me it's like trying to play golf in the rain- you don't play golf in the rain, you stay inside 'til the sun comes out again.
I agree with this point of view as the subjective aspect of trading, which in my mind is the skill to pick up the best point in time when an ever changing distribution of probabilities tilt in your favor. This is the way I see it:
Most of the time, one direction will have more probabilities than the other, depending on many factors such as the current trend, support, resistance, news, etc.
As others have pointed out, it doesnât make any sense to even talk about this without a fixed time frame. What we have is a distribution of probabilities for different time frames. For example, at any given time the price has X% probabilities of going up during the next hour and Y% probabilities of going up during the next day.
There is another variable that has to be considered and that is the magnitude of the movement in the given direction and time frame.
We donât have a chance such as X/Y, but a three dimensional matrix made up by the variables direction, time and magnitude.
For example: for a stock trading at 50 we may have:
For the next bar:
20% chance of going down 3 points
30% change of going down 2 points
40% chance of going down 1 point
60% chance of going up 1 point
40% chance of going up 2 points
For the next two bars:
10% chance of going down 3 points
20% change of going down 2 points
30% chance of going down 1 point
70% chance of going up 1 point
50% chance of going up 2 points
and so on â¦
A 50/50 chance of the price going up or down at any given point of time is just one point in this matrix and only valid for an specific target and time frame.
Unfortunately, I donât have any objective way of calculating all this so I have to rely on experience and skill to try to predict (guess) the point where this ever-changing matrix contains the best probability for my target and timeframe.
S = shares of 1st entry
P = price of 1st entry
every 2Q points up you add another S shares
Then the sequence for your average price after every add after the initial position is:
P + Q
P + 2Q
P + 3Q
P + 4Q
P + 5Q
.
.
.
giving the sequence 12345
I know this can't be what you meant, but I figured my attempt might cajole more information out of you.
Carl
Icam, So at 50 with a target of 60 and a loss at 40, you might take that bet. It's 50/50 ten points either way.
But now at 48? Only 8 for my loss but 12 for my profit. Would you take that bet at even money? (it started out an even money bet, is it still an even money bet? It is if I remember where I got in at.)
Now at 52 let me get this straight. For even money only 8 needed to win and 12 needed to lose? Sure I'll take that bet.
I am just trying to explain something we all act on in real life as though it is true. Does this sound right? Or when it drops to 48 or moves up to 52 is it no longer an even money bet? And at what point do the points needed turn from representing risk to reward?
At 48, I need 12 points to win and 8 to lose, but now it is paying 12 points for a win and only 8 points if I lose.
I have a sneaking suspicion that the bookie and the odds don't even care where I got in. Even the market can't remember.
But now at 48? Only 8 for my loss but 12 for my profit. Would you take that bet at even money? (it started out an even money bet, is it still an even money bet? It is if I remember where I got in at.)
Now at 52 let me get this straight. For even money only 8 needed to win and 12 needed to lose? Sure I'll take that bet.
I am just trying to explain something we all act on in real life as though it is true. Does this sound right? Or when it drops to 48 or moves up to 52 is it no longer an even money bet? And at what point do the points needed turn from representing risk to reward?
At 48, I need 12 points to win and 8 to lose, but now it is paying 12 points for a win and only 8 points if I lose.
I have a sneaking suspicion that the bookie and the odds don't even care where I got in. Even the market can't remember.
A 50/50 chance is a very rare occurrence for a fixed magnitude and time frame. As I said in my previous post, I believe that the three variables direction, magnitude and time have to be considered together. And that the probabilities for one direction over the other are not symmetrical most of the time.
For example, today 8/29/28, do you think that QQQ has the same probability of moving to 25.48 than to 21.48 before Friday? I don't know the probabilities, but based on what I know it seems to me that 21.48 is more probable than 25.48 even if the magnitude of the movement is the same for the same time frame.
For this discussion, lets say that the probability of it reaching 25.48 is 30% and the probability of it reaching 21.48 is 60% and the probability of not reaching any of these is 10%.
Obviously, if I had confidence in these estimates I would enter on the side with the greater probability.
If I donât know anything about the trade and flip a coin to decide what side of the trade to enter, I have a 50/50 chance of picking the one with the most probability. Which is different from a 50/50 chance of winning or losing.
There are six possible outcomes:
1) The probability of it getting to 21.48 (60%) and going short (50%) is: 0.70 * 0.50 = 0.30 (you win)
2) The probability of it getting to 25.48 (30%) and going long (50%) is: 0.30 * 0.50 = 0.15 (you win)
3) The probability of it getting to 21.48 (60%) and going long (50%) is: 0.60 * 0.50 = 0.30 (you lose)
4) The probability of it getting to 25.48 (30%) and going short (50%) is: 0.30 * 0.50 = 0.15 (you lose)
5) The probability of not hitting either (10%) and going short (50%) is: 0.10 * 0.50 = 0.05
6) The probability of not hitting either (10%) and going long (50%) is: 0.10 * 0.50 = 0.05
The probability of winning (1 OR 2) is 0.30 + 0.15 = 0.45
The probability of losing (3 OR 4) is 0.30 + 0.15 = 0.45
The probability of not winning or losing (5 OR 6) is 0.05 + 0.05 = 0.10
This shows that there is only a 50/50 chance if the probability of not hitting any of the targets is exactly 0%. This may seem obvious, but we tend to forget that if we donât set realistic targets and a timeframe for them the probabilities of hitting them are not even 50/50.