Luck
- Thread starter Commisso
- Start date
If have flipped a coin 40 times and it has come up heads 35 times, what are the odds that its heads the next time? It's 50/50, the next flip isnt dependant on the last, and is should be looked at in the context of all the coin flippings that have occured whether you did it or some-one else did. Over time you can apply your edge, but I think that each trade is pretty much a random event. If I'm long Yahoo, how much control do I have if a hedge fund manager who is long 2million shares wants to get out at the market? I have no idea why that would happen, but its not 100% impossible either. I think a lot of the trouble people have comes from not understanding that, one trade is just that, one trade and anything can happen. Its only over time that you can press whatever edge you might have.
Brandon
ps, "luck" might not be the best word to describe it, but I don't know what other word to use to describe it.
Brandon
ps, "luck" might not be the best word to describe it, but I don't know what other word to use to describe it.
To clarify, I'm not saying that your trade results are luck. For example two traders could have each shorted the nasdaq this morning, but trader "A" covers for a 10 point profit while trader "B" covers for a 40 point profit. Same rules for both traders but trader "A" didn't follow his/her rules and took a quick buck.
Your methods and systems(and trading P/L) are not luck. You can't control the market however, and that is what I'm referring to.
Your methods and systems(and trading P/L) are not luck. You can't control the market however, and that is what I'm referring to.
Either you have a plan or you have luck.
If you have a plan, trade it, and it has a positive expectancy, you can expect to profit.
If you don't have a plan, then you are relying on luck, and are a fool (who will soon be seperated from his money). Anyone who is consistently profitable but says that they are just lucky on each trade isn't being honest.
Luck has nothing to do with making money in the market. It doesn't even bear consideration.
If you have a plan, trade it, and it has a positive expectancy, you can expect to profit.
If you don't have a plan, then you are relying on luck, and are a fool (who will soon be seperated from his money). Anyone who is consistently profitable but says that they are just lucky on each trade isn't being honest.
Luck has nothing to do with making money in the market. It doesn't even bear consideration.
I think you have to differentiate the type of trade and the type of trader. A discretionary trader knows when he is taken a good shot at a high percentage trade and when he is taken a high risk trade that could turn into a big winner if things unfold as they sometimes do. Additionally, when you have a specialist moderating the order flow and you know how they usually deal with certain situations you might say you would be unlucky if you did not make money on a certain trade. So what does all this mean. At any given time you could be wrong on any given trade but if you are trading based on experience or a method, I would say luck has nothing to do with it or everything to do it with depending on how you define luck. Am I lucky to be alive and trading? I personally believe that luck has nothing to do with anything except games of chance. (that may be a bit of an exaggeration)
I've been reading a lot of messages since I signed on here, and I've seen a lot of misconceptions passed around. Yes, the outcome of individual trades is at least partly based on chance. I like this word better than luck which implies a lack of skill in the outcome.
Lets assume for simplicity every trade hits either a stop loss or profit target. Your expectancy is then:
(chance of hitting target)x(gain) + (chance of stopping out)x(loss)
(where the loss is expressed as a negative amount)
If someone gives you $2 for heads on a fair coin and takes $1 for tails, even thought the outcome is random you still have an edge and will make an average of $0.50 per flip in the long run.
Now you can unsimplify the above equation by summing up all possible outcomes of a trade times the chance of each one occurring, and then factoring in transaction costs by adjusting the gain or loss for each outcome to include them.
Someone wrote that if breakouts fail 50% of the time that means they don't work. Not if you get on average $x out of it when they work and lose less than $x when they don't. Then they give you a positive expectancy.
Indeed it is possible for a trade to work even if your chance of winning on the trade is much less than 50%, if you keep your losses much smaller than your gains. That is not to say that it is enough to just tighten up your stops, you also have to weigh how this affects the probability of the various outcomes.
So I would say that yes every trade involves both a degree of chance and a degree of skill which in this case is the ability to choose and manage trades in such a way as to maximize expectancy.
Lets assume for simplicity every trade hits either a stop loss or profit target. Your expectancy is then:
(chance of hitting target)x(gain) + (chance of stopping out)x(loss)
(where the loss is expressed as a negative amount)
If someone gives you $2 for heads on a fair coin and takes $1 for tails, even thought the outcome is random you still have an edge and will make an average of $0.50 per flip in the long run.
Now you can unsimplify the above equation by summing up all possible outcomes of a trade times the chance of each one occurring, and then factoring in transaction costs by adjusting the gain or loss for each outcome to include them.
Someone wrote that if breakouts fail 50% of the time that means they don't work. Not if you get on average $x out of it when they work and lose less than $x when they don't. Then they give you a positive expectancy.
Indeed it is possible for a trade to work even if your chance of winning on the trade is much less than 50%, if you keep your losses much smaller than your gains. That is not to say that it is enough to just tighten up your stops, you also have to weigh how this affects the probability of the various outcomes.
So I would say that yes every trade involves both a degree of chance and a degree of skill which in this case is the ability to choose and manage trades in such a way as to maximize expectancy.
Wasn't it Vince Lombardi who said that luck is when preparation meets good execution? Just an aside: a friend of mine who's a good TA once said that someone could flip a coin to enter a position and with good risk vs. reward stay alive longer then a decent system trader who poorly manages risk.
I think what you asking is "Is it possible to produce a successful result over time with random entries but specific exits?" In other words, can one just jump in anywhere in a random fashion, and then once in, work the trade to a successful conclusion (on average, of course)?
Is this what you're asking?
Nevertheless, it's a very intriguing question. Is it possible?
hmmmmm......
Is this what you're asking?
Nevertheless, it's a very intriguing question. Is it possible?
hmmmmm......
Better yet double down or you are leaving a lot of expectancy on the table.
