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Probability 101
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Probability 101

  #11 (permalink)
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Fat Tails View Post
You beat me by a few seconds by shamelessly posting a video, where I tried to explain it with my own words. That is unfair!

At least the guy in the video said the same thing, so I do not need to comment it.

You snooze, you lose!


I apologize, I know you like to discuss these things. I try to be as cost-effective as possible and I think mathematical discussions are best reserved for more advanced topics.

I'll refrain from posting more videos and give you a fair chance from now on!

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  #12 (permalink)
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Fat Tails View Post
I disagree with that particular statement.

Let us say assume that there is a 10% probability that I am wrong. In that case

-> the probability that I am right are 60 % (the numerical value is 0.6)
-> the odds that I am right are 6:4 (the numerical value is 1.5)

If you talk about a probability you talk about the ratio of favourable to all occurences. If you talk about the odds you talk about the ratio of favourable to unfavourable occurences.

Or maybe this is just an odd philosophical discussion on probabilities.

The way I think about it, 10% probability that you are wrong, is meaningless. 10% probability based on what? To me, the statement does not have enough information to be meaningful. I always think of probability as based on a sample, and odds as based on number of possible outcomes. The odds of you being right or wrong 1:1, because you can only be right or wrong. The odds of rolling a 1 from a 6 sided die, is 1:6, the odds of being a winner if the outcome is 1-3 and a loser it the outcome is 4-6 is 1:1 Seems to make sense to me thinking about it in those terms.


Last edited by monpere; March 24th, 2012 at 08:54 PM.
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monpere View Post
The way I think about it, 10% probability that you are wrong, is meaningless. 10% probability based on what? To me, the statement does not have enough information to be meaningful. The odds of you being right or wrong 1:1, because you can only be right or wrong. The odds of rolling a 1 from a 6 sided die, is 1:6, the odds of being a winner if the outcome is 1-3 and a loser it the outcome is 4-6 is 1:1

A (fair) coin can have two outcomes, therefore the odds is 1:1. Do you consider the market a fair coin? Would you say that it has a 50% chance of reversing or continuing for each tick?

Just because the outcome of the trade/direction of the market is unknown to the trader, does not mean that it doesn't follow a determined path.

I desperately need food. There is a 100% chance that I will make some!

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Lornz View Post
People keep saying that each trade is 50/50, without declaring a stop and profit target.

I am saying each trade is either a winner or a loser. If I ever said it has a 50% chance of winning and a 50% chance of losing, then that is not what I meant and would be happy to correct myself.

I am saying regardless of your edge, regardless of your probabilities, each trade can be a winner or a loser. So you need to be prepared for that loser, even if you have a very big edge, because you cannot predict the outcome of the next trade.

The outcome is either a winner or a loser, even if you have a 99% edge, the outcome of the next trade is the same. You cannot predict the outcome of the next trade, regardless of your edge.

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Lornz View Post
A (fair) coin can have two outcomes, therefore the odds is 1:1. Do you consider the market a fair coin? Would you say that it has a 50% chance of reversing or continuing for each tick?

Just because the outcome of the trade/direction of the market is unknown to the trader, does not mean that it doesn't follow a determined path.

I desperately need food. There is a 100% chance that I will make some!

I don't think the market can be compared to a fair coin toss. I think it is a meaningless comparison as well. Odds of 1:2, does not mean probability of 50% to me. The odds that the market will tick up or down 1:2, the probability it will tick up or down cannot be determined just based on that statement alone, unless you tell me what it did on the last 1000 ticks. Although you can convert 1:2 to 50/50 to 50% numerically, does not mean they are representing the same concept. There is a reason why odds are expressed in the term x:y, and probability in percentage, they are not the same thing. x:y is x chance out of y total outcomes. A percentage is saying 1 out of 100, which automatically implies a default sample size of 100 occurrences for comparison.

I think the outcome of a single trade win or loose can be compared to a coin toss heads or tails, but I cannot compare how far a rising triangle will break out to a coin toss. As I've said multiple places before, those comparisons along with analogies to Michael Jordan lay up's just ridicule the original subjects being discussed.

I believe the original reference to 50/50 is referring to the odds of any trade winning or losing 1:2, which someone converted to 1/2, or 0.5 or 50/50, an expression of the odds of win/lose, very different then the probability of that trade being a winner based on some criteria of a large sample of trades.


Last edited by monpere; March 24th, 2012 at 10:00 PM.
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Big Mike View Post
I am saying each trade is either a winner or a loser. If I ever said it has a 50% chance of winning and a 50% chance of losing, then that is not what I meant and would be happy to correct myself.

I am saying regardless of your edge, regardless of your probabilities, each trade can be a winner or a loser. So you need to be prepared for that loser, even if you have a very big edge, because you cannot predict the outcome of the next trade.

The outcome is either a winner or a loser, even if you have a 99% edge, the outcome of the next trade is the same. You cannot predict the outcome of the next trade, regardless of your edge.

Mike

I'm not out to "get" anyone, I just like math and dislike logical fallacies. I agree with your post.



monpere View Post
I don't think the market can be compared to a fair coin toss. I think it is a meaningless comparison as well. But I think the outcome of a single trade win or loose can be compared to a coin toss heads or tails, but I cannot compare the likelyhood of rising triangle breaking out or not, to a coin toss. As I've said multiple places before, those comparisons and analogies to Michael Jordan just ridicule the original subject.

Each trade can either win or lose and the outcome is uncertain. This does not mean that each possible outcome has the same chance of happening.

If every "next trade" has a 50% of success, how can the series of trades tilt in your favor?

I don't like to use analogies, but consider this:

You stand right where a hiking trail splits into two: one leading to the summit, and the other down to the valley. You have no way of knowing which path each hiker will take (aside from making educated guesses based on their appearance and behavior) , yet each one of them have already decided which path to take. So, even though the outcome is unknown to you, the result is 100% predetermined. Thus two potential outcomes do not equal a 50% chance.

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My dinner is burning on the stove, so I'll leave you with this:

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Lornz View Post
My dinner is burning on the stove, so I'll leave you with this:



I will indulge yet this attempt to ridicule the discussion to illustrate the different concepts. The odds of picking 'any' answer on the next random pick 1:4. The probability of picking that answer on the next pick, I will tell you after I've done 100 random picks (and thus I will express it as a percentage)


Last edited by monpere; March 24th, 2012 at 10:26 PM.
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Lornz View Post
You snooze, you lose!


I apologize, I know you like to discuss these things. I try to be as cost-effective as possible and I think mathematical discussions are best reserved for more advanced topics.

I'll refrain from posting more videos and give you a fair chance from now on!

Some more videos, plzzz.....

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monpere View Post
I don't think the market can be compared to a fair coin toss. I think it is a meaningless comparison as well. Odds of 1:2, does not mean probability of 50% to me. The odds that the market will tick up or down 1:2, the probability it will tick up or down cannot be determined just based on that statement alone, unless you tell me what it did on the last 1000 ticks. Although you can convert 1:2 to 50/50 to 50% numerically, does not mean they are representing the same concept. There is a reason why odds are expressed in the term x:y, and probability in percentage, they are not the same thing. x:y is x chance out of y total outcomes. A percentage is saying 1 out of 100, which automatically implies a default sample size of 100 occurrences for comparison.

I think the outcome of a single trade win or loose can be compared to a coin toss heads or tails, but I cannot compare how far a rising triangle will break out to a coin toss. As I've said multiple places before, those comparisons along with analogies to Michael Jordan lay up's just ridicule the original subjects being discussed.

I believe the original reference to 50/50 is referring to the odds of any trade winning or losing 1:2, which someone converted to 1/2, or 0.5 or 50/50, an expression of the odds of win/lose, very different then the probability of that trade being a winner based on some criteria of a large sample of trades.

I think the problem is here that you are trying to redefine something, which is already clearly defined. This would be similar as calling a tree a whale. In that case I can see that there is a couple of whales in my garden.

"The Odds" is a concept that has been used for ages and defined by mathematicians. Both "The Probability" and "The Odds" assume that either there have been numerous trials of toin cosses or something else before, or that either there is an inherent probability that weighs on future events.

The only thing different between "The Probability" and "The Odds" is that they are different ratios. "The Odds" isthe expected ratio of favourable outcomes divided by unfavourable outcomes. "The probability" is the expected ratio of favourable outcomes divided by all outcomes.

Nothing mysterious. By the way if the odds are 1:2, this implies a probability of 33.3% - not 50%. Why don't you watch the video post by @Lornz? The difference is well explained.

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