Understanding Probability

[Tavurth]

As traders we must deal with probability to be successful. I have noted that during the course of my skill progression, I have begun to think of things in a very different way.

I believe that the human mind is built to subconsciously analyse, and interpret the probabilities of life. However, living a life where everything is organised, and with stable in repetition, we may damage, impair or stunt the growth of our ability.

I'd like to start a discussion on how we see probability, and ask the question: How has your perspective on life changed, during your trading career?

 

[loyek590]

if you are a gambler, that's all you do is bet on probablities

that's why my money is on Pharoah, but my heart and instinct are rooting for Frosted

if the odds change maybe I can arbitrage

 

[marketsurfer]

Read "fooled by randomness" and 95% of the issues of why folks can't understand or profit from the markets becomes clear. Its a great starting point for "right" thinking.

 

[longthewings]

Ah yes....the old "Which insurance policy would you buy?" test at the airport.....if I remember correctly they found out that even professional statisticians routinely answered that one wrong....

 

[loyek590]

if you are a gambler, that's all you do is bet on probablities

that's why my money is on Pharoah, but my heart and instinct are rooting for Frosted

if the odds change maybe I can arbitrage

I wouldn't mind breaking even if it's Pharoah and making a small amount if it's Frosted

Read "fooled by randomness" and 95% of the issues of why folks can't understand or profit from the markets becomes clear. Its a great starting point for "right" thinking.

we gonna go through this again? 95 if not 99% of the move is random. You make money by being on the right side of the 1% time it is actually trending.

 

[Tavurth]

The Monty Hall Problem is interesting for those who haven't yet seen it.

I remember looking at this several years ago, and was able to wrap my head around it, but without full comprehension. Upon reviewing the subject recently I've realised just how important it is.

 

[Elynt]

The Monty Hall Problem is interesting for those who haven't yet seen it.

I remember looking at this several years ago, and was able to wrap my head around it, but without full comprehension. Upon reviewing the subject recently I've realised just how important it is.

I'm so glad you mentioned this! A great example of how our "logical" thinking often falls short of rationality. For technical analysis, probability really is everything. For technical traders struggling to make profits, I strongly advise looking at the common interview questions at top quant firms. Notice any significant patterns in the type of questions they ask?

 

[NoDoji]

It's always good to know ALL the data behind the statistics. If I told you a drug with dozens of nasty side effects reduces the 5-year cancer death rate by 50%, you'd likely pay dearly to get your hands on it. But if I then told you that the 50% reduction was based on 1 death in 10,000 patients taking the drug vs. 2 deaths in 10,000 patients not taking the drug, and if I shared the fact that the 10-year survival rate was significantly better in the non-drug group, it might not be so appealing. This sort of sh*t is done by the healthcare industry daily. It works just as well for the financial industry.

 

[loyek590]

I'm so glad you mentioned this! A great example of how our "logical" thinking often falls short of rationality. For technical analysis, probability really is everything. For technical traders struggling to make profits, I strongly advise looking at the common interview questions at top quant firms. Notice any significant patterns in the type of questions they ask?

getting a job at a quant is one thing, making money in the market is another. You may be really good at recognizing "significant patterns" in the simple questions they ask on your interview and may be really great at bullshitting employers and getting hired. But all that means is you can make it as an employee. If they were making money trading they wouldn't need you.

 

[marketsurfer]

getting a job at a quant is one thing, making money in the market is another. You may be really good at recognizing "significant patterns" in the simple questions they ask on your interview and may be really great at bullshitting employers and getting hired. But all that means is you can make it as an employee. If they were making money trading they wouldn't need you.

No, elynt is correct. There are questions that can't be bs'd.

However, he is wrong about probabilities andTA going together. You need to be able to measure to determine probabilities. Ever try to measure or even define TA enough to test it and determine probabilities?

TA is feel-- intuitive at best-- and has nothing to do with probsbilities. If it did, you would not be staring at charts but rather programming strategies. surf