Analogy of trading

failed_trad3r · Dec 30, 2009

We could give an analogy of trading which is the coin toss.
When heads falls 10 times a in a row, it means the chance of tails falling has increased. Even when the probability has stayed the same 50%.
Traders should understand the consequences of probability in statistics.

Pension_Admin · Dec 30, 2009

I personally believe that it is better to understand the coin and how it is made, which have an affect on the result.

Gabfly1 · Dec 30, 2009

Quote from failed_trad3r:

We could give an analogy of trading which is the coin toss.
When heads falls 10 times a in a row, it means the chance of tails falling has increased. Even when the probability has stayed the same 50%.
Traders should understand the consequences of probability in statistics.

Evidently, you are not one of those traders who understands "the consequences of probability in statistics."

As an aside, coin tosses are entirely independent of one another, assuming a fair coin and a fair toss. Price action, not so much. Also, there is really no such thing as a probability distribution for future price action, as there is for a coin toss. You are confusing uncertainty that may have a balance of probability, with an actual probability distribution.

failed_trad3r · Dec 30, 2009

Quote from Gabfly1:

Evidently, you are not one of those traders who understands "the consequences of probability in statistics."

As an aside, coin tosses are entirely independent of one another, assuming a fair coin and a fair toss. Price action, not so much.

If coin tosses are truly independent, there would be no 50% probability.

The longest streak of roulette is 55. If you have a set of 55, 56 is pure 100% win.

Gabfly1 · Dec 30, 2009

Quote from failed_trad3r:

If coin tosses are truly independent, there would be no 50% probability...

You don't know what you are talking about. Have a nice day.

Smart Money · Dec 30, 2009

Please do not feed the trolls

Pension_Admin · Dec 30, 2009

P(56 heads) is not equal to P(the 56th coin toss result in head)

P(56 Heads) = 0.5^56
P(the 56th coin toss result in head) = 0.5

Trvlwanderer · Dec 30, 2009

Quote from failed_trad3r:

We could give an analogy of trading which is the coin toss.
When heads falls 10 times a in a row, it means the chance of tails falling has increased. Even when the probability has stayed the same 50%.
Traders should understand the consequences of probability in statistics.

Ummmm. This is completely false.

There is no argument.

Each toss is independent. The probability is based on number of possible outcomes, not a fixed data set.

Close thread to spare the inevitable flame war

failed_trad3r · Dec 30, 2009

Quote from Trvlwanderer:

Ummmm. This is completely false.

There is no argument.

Each toss is independent. The probability is based on number of possible outcomes, not a fixed data set.

Close thread to spare the inevitable flame war

When you have a set of 11, and the first 10 is heads, the probability for the 11th isn't 50%. However if you increase the set from 11 to say 11 million. And the first 10.999.999 are heads, then the probability of getting tails is much greater than when the set is just 11.
The reason for this is that probability is quantified, just like energy. When the sets becomes infinity large, the number of sets that result in tails will increase by a certain quanta.

Pension_Admin · Dec 30, 2009

This is why trading is so hard:

There are many concepts in trading and a trader need to be educated (this is why we need college) enough to know if a concept is wrong.