Probability and Trading

[sridhga]

Referring to
https://en.m.wikipedia.org/wiki/Feller's_coin-tossing_constants

In the example given, If we toss a fair coin ten times then the exact probability that no pair of heads come up in succession (i.e. n = 10 and k = 2) is p(10,2) = 0.1406263...

Does this mean in 10 tosses, the probability of a pair of heads or tails coming out in succession= 1-0.14 ?

What is this probability formula for X tosses in general?

In 10 tosses the likelihood of seeing two consecutive heads within them is 0.86.

 

[Gazillionaire]

In 10 tosses the likelihood of seeing two consecutive heads within them is 0.86.

Ok, the formula refers to some fibo no.
P(n,2) = Fibo n+2 / 2^n
For 5 tosses, what no. do you plug in for fibo no. for p(5,2)?
i.e. what no. is fibo(7th)

There seems to be an error in the example for p(10,2).
In the denominator, how can 2^10 = 64?

 

[sridhga]

A friend of mine pointed out just now. Silver is within 1% striking distance from 52 week low. It has been falling for the last one month. What is the probability that it tests the low?

The answer need not be calculated. Of course it can be derived using daily ranges, but that is not the purpose for a trader. I can say the probability is above 0.5 I have put in a short trade in silver before I typed this.

 

[SunTrader]

I studied it during my master's course in Mathematics. That was 25 years ago. I do keep a track of the progress in the field. Although scientists did develop models for stock markets and there have been research papers on the same, I do not think any tradeable models/tools have evolved out of them so far. That is why, in my earlier post, I was referring to progress in Artificial Intelligence. Chaos computing with AI may provide answers in the future.

Might.

 

[FreeGoldRush]

I can say the probability is above 0.5 I have put in a short trade in silver before I typed this.

Yes, it is above 0.5. But that isn't the reason for entering the trade. There are lots of assets near some arbitrary price (52 week low, high, VWAP, whatever) that have a 0.5 or greater chance of passing that arbitrary point. But you will find that entering trades for this reason doesn't create gains on average.

 

[spooz]

Thank you for your detailed points.

Point no. 1: You are right. I described that trade in the above post of mine. Sometimes it goes for one more leg in the direction of the earlier trend.
Point no. 2: Agreed. Same as point no. 1
Point no. 3: You are right. This happens and it results in double top/ double bottom at that extreme.
Point no. 4: How would you suggest target setting?

Once again, Thank you for in-depth observations.

Setting a target is very difficult, again my answer would be“it all depends”. A very common method I use is to go long after a pullback and get out when the market makes a new high. Short trades are just the opposite of course. When you have exited the market at the new high watch out for the possibility of a short trade. The market we have now gives you the opportunity to pick a target from a longer time frame in my case 15 minutes. Whether you are long or short put yourself on the other side of the trade. Where would you want to enter the market in the opposite direction? That's where you put your target. Be realistic don't, put the target at some distant point that you wish the market would go to but probably wont. You need several hundred hours of watching your market, then you should have some idea of how it will behave.

I gather that you are following a pattern that you saw in a book. From what I surmise it's very precise with exact instructions. That's fine you have to start somewhere. At least you haven't got sucked into the dead end of indicators etc. I think you are on the right path. You will most likely find the pattern you are looking at is too restrictive and may have to broaden it's scope. It will be a many step process.

 

[SimpleMeLike]

Thank you for your detailed points.

Point no. 1: You are right. I described that trade in the above post of mine. Sometimes it goes for one more leg in the direction of the earlier trend.
Point no. 2: Agreed. Same as point no. 1
Point no. 3: You are right. This happens and it results in double top/ double bottom at that extreme.
Point no. 4: How would you suggest target setting?

Once again, Thank you for in-depth observations.

Hello sridhga,

I do not know.

Thank you,

 

[murray t turtle]

That's an interesting analogy
How do you relate logging to trading?
It's what I did before I traded and I'm having trouble seeing any similarities.

%%
[a]WELL, i checked out a lot forests rather than a few trees. Then got in....
b]Could have used any business, but that other elite trader compared it to the same forest, so i'll build off that.
bc] Both can/\ be a tough business.
d] commercial loggers want a certain size/\ even though it varies
e]trees dont grow to the moon but that's the current direction for SPY today as of 11;47
f] Fun to watch 'em knock\cut them down; i like to plant apple trees also.
You probably know more about loggin' than me.
[g]WHEN it got real rainy we agreed no logging deep ruts on my place. So usually tends to pay to plan.....

 

[Dollardogs]

Nice try at passing comments.

Thanks!