The Dumbest Question of All Time?

Quote from JMowery1987:

if your risk reward ration was 1 to 3. There is more of a chance that the stop will be hit more times than the profit target.

To put it simply. You will gain more on your winners, but your winning % will be much lower, and then out of all the randomness, it will be determined if you win or not.

1 to 3 risk/reward, your system would be right about 33% of the time (not 100% sure), so I somehow believe it will all even itself out.

EDIT:
http://www.agribiz.com/ngfa/CoinToss/cointossdist.html
There is a random coinflip type deal, but it wasn't what I was specifically looking for. Will try to find the other thing.
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Mowery - not sure you understand what risk to reward means. In the example of 1 to 3, you are risking 1 point to make 3 points. This does NOT mean you are right 33% of the time, that is a completely separate function.

I prefer to trade on 1 to 2 at the minimum, which means I am willing to risk 1 point on the ES in order to make 2 points and my win % fluctuates between 60-85%. The win % is a completely separate calculation from risk-to-reward.
 
Quote from brownsfan019:
Mowery - not sure you understand what risk to reward means. In the example of 1 to 3, you are risking 1 point to make 3 points. This does NOT mean you are right 33% of the time, that is a completely separate function.
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Exactly, the factor of a target/stop of 5 does not mean the target will be hit only 20% of the time. That would be too easy. That would mean that a target of +1 tick would be hit 10 times more often than a target at +10 ticks. This is not true.
Both chances depend on the probability distribution, which has a log-normal shape where the width of the shape is determined by the volatility of the stock.
The chances of +100 are far less than 1/100th of the chances of +1.

Ursa..
 
Quote from skippy:

Ok, here's what I don't understand:

Price can do one of two things -- go up or go down. ......
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price can move sideways too.....that point alone distroys your hypothesis.
 
Quote from krazykarl:

price can move sideways too.....that point alone distroys your hypothesis.
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LOL, price can stay the same, it does not move sideways.

otherwise one would need a z axis to plot this action.
 
Quote from gaijin2006:

I can assure you that you can arrive at a better
than 50/50 guess.
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You can never know what will happen next.

The outcome of each trade requires participation of other traders, sometimes they are going to be there, sometimes they wont - every moment is unique.

In the long run you can have an edge with an expected outcome of over 50 %, but you can never know if the next trade or the ten next trades will end in your favour.

/
 
How is trading then, any different than a refined version of gambling?

Afterall, both seem to be numbers' games based on probabilities.

By "refined" I mean ppl have actually come up with indicators, studies and analysis of the possible outcomes in a trade. The study of gambling hasn't actually reached such levels- or atleast, not that I know of..
 
Quote from c.chugani:

How is trading then, any different than a refined version of gambling?

Afterall, both seem to be numbers' games based on probabilities.

By "refined" I mean ppl have actually come up with indicators, studies and analysis of the possible outcomes in a trade. The study of gambling hasn't actually reached such levels- or atleast, not that I know of..
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chugani - many people refer to active trading as a form of 'gambling'. You are right, you are placing monetary 'bets' based on probabilities in its simplest form.

Not sure many traders want to be referred to as gamblers though.
 
Quote from c.chugani:


Afterall, both seem to be numbers' games based on probabilities.
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To all the traders I know who make good money, this is exactly what trading is, and nothing more. Find some kind of positive expectancy and execute like a machine.
 
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