Probability of Success

What are your chances?

When you pull the trigger on a trade, entering the market, what is the probability that you will succeed, what are the odds that you will be successful?

This is a very difficult question to answer. For most traders simply do not know. They have got some kind of method that told them "now is the time to enter", and they entered a position in the market, but they have no idea what the odds are that it will turn out the right way. You can look at the statistics for the method and it will show the method had been very successful in the past and therefore you have trust in the method and you will hang on, but as to "what are the chances?" - you simply do not know..

(I remember a trade from the past, when still trading CFD's (contracts for difference). A gold trade. We had an advisor who would give us trading alerts via SMS (at a monhtly fee of course) and you would buy or sell a CFD. His track-record was incredible. So we bought Gold, but Gold went down and down. And at some point I had to wake up to the reality that I had a very real chance here to take a very substantial loss, if not wiping out my account. While this guy said "hang on, hang on, it will come right", I had to ask the question - "yeah we could hang on, but if I'm getting wiped out first - it is not your money!?". In the end I did what was best for me and I got out before it was too late. Gold did eventually turn around and started going up, and some people did actually make a lot of money on that trade - and this trade became another one of our advisor's "success stories", which he used to lure more people into his way of trading... But I was no longer part of that - my account would have been wiped out before the turn came..)

What is the point of this? The success statistics of a method (such as in my case advice from a professional trader) is skewed. Any position, if you stay in it long enough, will eventually be profitable. They do not show how much of a loss you will first have to go through before you come out on top. In my case I would have lost my account first. But in the "statistics" for this "method", this trade counts as another highly successful trade. In reality, when you enter the market your chances of outright profit is less than 50%. Most of these trades first go through a dip before they become profitable - the question is whether your account can survive that dip? If it can't, you will be wiped out, but the trade itself will still count as "another successful trade" - because for those that did hang on (those with bigger accounts than you) the trade the method suggested did eventually produce a profit.

(And if it doesn't turn, just goes down and down..? The "method" will tell you that you cannot blame the "method" for your loss - you are in charge of your own account, YOU should have managed your own position - the "method" is 80% accurate, this was one of those 20% trades where the "method" was wrong - you should have managed that situation! But then the moment that you start filtering the trades the "method" suggests, then you also exit prematurely on the winning trades - then what's the use of the "method"?)

Thus, let's get back to the question - when you pull the trigger on a trade, what are your chances of success?

(My personal trading has evolved. I am no longer trading CFD's or Forex. I select trades based on probability of success - when I enter the market, the odds are on my side, 70% or more of the time. Yes I still take losses, but my losing frequency has been drastically reduced! What is more, is that if I am wrong I'm wrong and I get out - immediately!)

Things to think about

  • When you are entering a trade, picture the person on the other side of that position - think of him as exceptionally well trained, a seasoned professional at the top of his game. Remember that trading is a zero sum game. This professional is going to take your money, unless you can turn the table in your favor!
  • When you pull the trigger, on say your FOREX transaction, what are the odds of you winning? Is it 50:50? If it is you are going to need a very sound money management strategy to get out on top in the long run.
  • Can you really afford to start out in this business with zero training, with no investment in knowledge? Knowledge on how to select your market, how to select the positions with the highest probability of success. Knowledge on how to plan your trade beforehand and on how to manage the trade once you are into it?
  • Trading is a business. It is not a game. Your approach needs to be different - you cannot hope to, with zero training and no experience, at work from your tablet (or on your mobile phone, like playing a game), in between your daily activities and meetings trade the markets and beat the experts at their own game!

Probability Trading

The way we trade is different from the way that most other traders trade. We are very much concerned about the probability of success. As an example, look at this report - how will your trading be different with this kind of odds?

Things to be aware of

Knowledge is key

There are a lot of "trading marketing" happening, a lot of hype - it seems everyone just want you to jump in and trade.. It amazes how few are telling you the whole story. Let's explore this a little..

Trading is a zero sum game

Swimming in dangerous waters - some trading misconceptions

Entering a trade, what is your probability of success