Am I Missing Something - Probability and Streaks

Status
Not open for further replies.
This thread reminds me of the blackjack strategy where if you keep doubling your bet you're bound to win eventually.
Well, I tried that once on some damn riverboat in Biloxi waiting for the waitress to come back with a pack of smokes. It doesn't work.
F'rs ended up costing me like $2400.
 
lmf21734 said:
Thanks eganon69

appreciate your clarification. So streak science is more there to give us an idea of what potential streak losses we could be exposed to with our strategy so that we can use this data to properly apply the right position size and minimise the risk of ruin. correct?
More...

Exactly. THAT is why Win Rate is so important. Because the lower your win rate the more STREAKS of losses you have and more potential drawdown. People mistakenly think win rate is all about profit but it's really about LOSSES and capital preservation.

Yes you can have a wildly profitable system that has a 10% win rate but this is not a favored approach. Taken to the extreme you could have a 1% win rate....but then that becomes more like a LOTTERY. Think about it. Would you say the Lottery is a good way to trade??...NO... If you have 99% losers and they each lose say $1000 for a $100k account. But you have 1% winner that makes $750,000 you would think it's a profitable system because you ON AVERAGE bet $99k for every $750k made. BUT... you still have too high of a risk of ruin because of the high likelihood you will have 150 losses OR MORE in a row before you win even one time. If you can't trade because you have NO money you can't make money either. Again each prior trade has ZERO impact on the subsequent trade (assuming you trade PERFECTLY) but after a streak of 80 losses in this system do you think you will trade perfectly???....doubtful. So win rate can also effect you overall psyche and trade mentality.

I hope that clears it up.

Eganon69
 
I like to think of a high win rate as a form of utility value.

If I give you 1 billion to one on a 1 million to 1 shot, and you get to play once a day for the rest of your life, how much can you bet.

No need to thank me.
 
eganon69 said:
you can have a wildly profitable system that has a 10% win rate but this is not a favored approach.
More...


I agree completely ... there are often a lot of "strange" comments about win rates in trading forums, that are perfectly mathematically valid and also dreadfully misleading.

Even if a profitable system with a 25% win rate has higher net expectancy than a profitable system with a 65% win rate (which is easily possible), the latter is still the better one to trade, for most people, most of the time, and especially for someone not too experienced.

The (often missed) point is that it's essential to avoid from the outset a situation where you may have a longer losing patch than expected and simply don't know whether it was just "very unlucky indeed" or "it's just stopped working", and therefore you don't know what to do about it. :confused:
 
No, but you need to understand a thing or two about nutrition, body composition, muscle building and cardio training to be a top athlete in golf or basketball or any sport.

You are committing the error of false equivalency my friend.

Mtrader said:
My bankaccount proofs just the opposite. I daytrade since the early 90's. For many years now not painfull and surely not money losing.

I repeat:
If you compare trading and probabilities in trading with flipping coins you should stop trading immediately as trading has NOTHING to do with flipping coins.

So don't break your head on something irrelevant to trading.

As basic probabilities of flipping coins has nothing to do with trading I have no problems in my trading. I understand basic probabilities of flipping coins but they are irrelevant for trading, that is my point. You have problems with comprehensive reading.

Do you have to understand how to play golf to be a good footballer? Because that is what you basically say.
More...
 
Coins don't have three edges and coins never land on neither head or tail. But that's not relevant. What is relevant is that one must possess a very good understanding of statistics, for risk and money management alone to succeed in this field, long term. Anyone who contests that does not seem to understand that trading is nothing but probabilities of future events, = expected values

Handle123 said:
Yea, I agree with you, but I think everyone develops Arrogance at some point, bragging rights of accomplishing what many can't seem to go. Trouble comes in when one start to believe in their own bullshit in being good, market tends to make oneself humble...and less money, LOL.
*********************************************

And flipping a coin is not exactly 50/50, what happens when it lands on the edge since a coin has three edges? I have twice had 23 losses in a row, and I know one day that personal record will be broken. Trading is like living, it is living, we all trade but often times it is at a store buying a pound of tomatoes is trading. Going to a flea market you are trying to get it at lower price, you have a limit order.

Records are to be broken, eventually and don't take it personal, if you have well back tested Trading Plan, the method is losing and not you. Don't bet the farm like I did many years ago, don't let that $300 stop loss turn into $30,000 account cause you violated your own rules.

Didn't find it funny then, but I can't stop laughing bout it now when I think back. Some of us are dumber than others-faster you realize that the better, but you then study more than others, keep open mind, listen more, even the people you don't like.
More...
 
I respectfully disagree, partly at least. It is about expected value not just win rate. One can have a fantastic trading strategy with a 25% win rate when the avg win more than makes up for the lesser winners than losers. Which brings me back to the point that a solid understanding of expected values, probability distributions, joint probabilities and the rest of the arsenal are absolute key.

eganon69 said:
Exactly. THAT is why Win Rate is so important. Because the lower your win rate the more STREAKS of losses you have and more potential drawdown. People mistakenly think win rate is all about profit but it's really about LOSSES and capital preservation.

Yes you can have a wildly profitable system that has a 10% win rate but this is not a favored approach. Taken to the extreme you could have a 1% win rate....but then that becomes more like a LOTTERY. Think about it. Would you say the Lottery is a good way to trade??...NO... If you have 99% losers and they each lose say $1000 for a $100k account. But you have 1% winner that makes $750,000 you would think it's a profitable system because you ON AVERAGE bet $99k for every $750k made. BUT... you still have too high of a risk of ruin because of the high likelihood you will have 150 losses OR MORE in a row before you win even one time. If you can't trade because you have NO money you can't make money either. Again each prior trade has ZERO impact on the subsequent trade (assuming you trade PERFECTLY) but after a streak of 80 losses in this system do you think you will trade perfectly???....doubtful. So win rate can also effect you overall psyche and trade mentality.

I hope that clears it up.

Eganon69
More...
 
Simply not true. The strategy with the higher expected value is the better one, always. If there are some people who cannot handle such then that's a problem with the person not probability theory.

Xela said:
Even if a profitable system with a 25% win rate has higher net expectancy than a profitable system with a 65% win rate (which is easily possible), the latter is still the better one to trade, for most people, most of the time, and especially for someone not too experienced.

The (often missed) point is that it's essential to avoid from the outset a situation where you may have a longer losing patch than expected and simply don't know whether it was just "very unlucky indeed" or "it's just stopped working", and therefore you don't know what to do about it. :confused:
More...
 
Here's the math koan I know you all were waiting for......


Student: "When is a coin toss binomial, and when is it Poisson?"

Master: "God."


I gave that as an extra-credit once. The student with the best answer is now an actuary. Cracks me up.....
 
Status
Not open for further replies.
Back
Top