Quote from nugundam:
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Very true. I think this tendency is in all traders after a losing streak. Wanting to make it back too quick. To quote Mark Douglas, "Believe that each trade is a unique event with an uncertain outcome and random in relationship to any other trade made in the past;" (although it may seem like you know what will happen next because you've seen the same pattern in the past repeat itself several times, in reality you don't know for sure). We must learn to think in probabilities. It is the single most important concept in trading IMHO. Because once we do everything else will follow, we will have discipline to cut our losses because we know that it may never come back and that anything can happen.
It is simple a number's game. I like how Douglas used the analogy of the Casino. The casino owner has a 4.5% Edge over the player. That means for every $1 risked, the Casino is expected to take 4.5 cents in the long haul (it might not seem much). However, with a turnover of $100 million that equates to $4.5 million. In the same manner in trading, if we have whatever small edge it may be (by definintion edge means a higher probability of one thing happening over another), if we use that edge in the long run we should come out profitable.
Just my two cents worth
nugundam
(We're way off topic now. Not sure about how strict the
moderators are here.)
Just found this:
Probability theory is the branch of mathematics concerned with analysis of random phenomena...The mathematical theory of probability has its roots in attempts to analyse games of chance by Gerolamo Cardano in the sixteenth century, and by Pierre de Fermat and Blaise Pascal in the seventeenth century...
http://en.wikipedia.org/wiki/Probability_theory
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Since we live in 'time', it is
always NOW. We can remember the bad things (bad
trades) of the past, but the past no longer exists.
We can't move forward in time any faster/slower either.
"The future is something which everyone reaches at the rate of sixty minutes an hour, whatever he does, whoever he is."
C.S. Lewis
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Actually I would prefer thinking of a winning trader as
a blackjack player that counts cards. The casino would be
the market. But if you like your analogy, go with that.
-Stephen
