Webinar: FuturesTrader71 (FT71) on Risk, Sizing, Scaling and Trade Management

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Mike, with all due respect this is a highly flawed argument, and is just plain wrong.

Following your logic, we can say:

There are 2 outcomes to playing the lottery:

Win
Lose

Doesn't mean I've got a 50% chance of winning it does it?

It doesn't matter that we're talking about just a singular trade, you could use the same argument and pick any percentage and it makes just as much sense. People are just thinking 2 outcomes, 1/2 = 50%.

I can say that the next roll of a (fair 6 sided etc) dice has a sixth of a chance of being a 1, that's not the same as "predicting" it's not going to be a 1.

It would be funny if it wasn't so sad.

I understand what FT71 is trying to convey, but it's a very poor way of putting it, and I don't think he realises just how bad his mistake is.

Dovie'andi se tovya sagain.

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I will bow out of the "50/50 next trade" line of debate, as we've already been through this on the last thread. It would be nice to talk about something else instead of focusing on this. So many good things discussed in the webinar, yet no one can get past the fact they can't predict the outcome of the very next trade.

The last thing I will say is that no one knows if the next trade will be a winner or a loser. There are two outcomes. You either are a winner or a loser. Call it what you want, but those are the choices of the very next trade.

I suggest you do the coin flip test.

Mike

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Look, the folks who actually understand formal mathematics, statistics & probability are relatively few. No reason to fight it since this forum and thread are dedicated to trading and not helping people understand mathematics. FT71 is using a simple, basic, and flawed argument to support a simple, basic and correct point... your next trade will either win or lose. That has nothing to do with the probability that your next trade will be successful. If the last 30 consecutive spins of a roulette wheel have come up Red, the odds the next spin will be Red is exactly 50/50 (if you ignore the zeroes.) But I'm sure no one thinks the probability of rolling 31 consecutive Reds is 50/50. It is what it is.

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Like mike said, the PROBABILITY of a future trade is 50/50, two outcomes, win or lose. The outcomes of a string of previous trades is a STATISTIC that represents your historical performance.

There is no way to know the distribution of losses against wins, you might have a 90% historical win rate, but the outcome of the next trade is unknown.

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6-sided dice have 6 outcomes...how many outcomes can a trade have?

How many possible prices or variables does the market generate?

The market is not a drawer of socks where you can compute the probability of pulling out a white pair of socks. It is an endless stream of variables.

The very next outcome of the trade is not 50% of a winning trade. It is a trade that either pays you for your edge or it doesn't. That's all.

This is where the intellect and need to be right is in conflict with the facts in front of us. This is where one wait for all things to line up to take the trade and then when the trade doesn't go the right way, we hesitate to take the loss because "dammit, everything lines up." Wrong! You can be the Michael Jordan of trading...your very next trade has an equal chance of having a winning as it does having a losing outcome.

You take the trade on a 60% edge because you have a better chance of winning over the series (which is dynamically changing by the way as far as that xx% edge). However, you can't have a 60% winner and a 40% loser on the next trade...can you?

Not sure why this is confusing. It is in front of us every day. It is a simple fact.

Mike stated it correctly. If you knew which of the 60% trades were winners, then mortgage your house and put 1,000 contracts on those and skip the rest. Oh...so you don't know where the 60% will come in?...so what do we do then?

That's my point, you wait for your edge where one activity has a higher probability over another as a series and you take the trade KNOWING that it has a 50/50 chance. You manage the risk and let the edge take care of itself over time.

Am I still confusing everyone? I'm probably not explaining in a simple way.

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Now, with that being said...I would love to learn about the complexities the "not flawed" argument so to speak. I would like to know what other way to look at this. We also work on trader-based automated systems and maybe this is knowledge I can apply there.

As always, past performance is NOT indicative of future results....for a reason.

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Formal mathematics? This is basic stuff. I'll agree the forum is about trading, but mathematics is included in that, otherwise we might as well throw out discussion on psychology and half the content on here. Understanding basic mathematics will quite likely help you be a better trader (see the Risk of Ruin thread).

If his point is "your next trade will win or lose", then he should just say that. "Teaching" people things that are patently false and then such mistakes being dismissed leads to this sort of nonsense:

Thank you FT71 for this incredible webinar. You webinar series helped me a lot. Iīm sure others would charge a lot for it, or split the sessions and charge us twice.

I donīt understand why the 50/50 % statement is generating such a discusssion. You cannot predict the outcome of the next trade! To accept that helps you to accept the losing trades and to prevent you from " wanting to be right" as well as "doing impulsive trades"! Of course you can have an edge with your risk and money management and manage the trade to your favour. But thatīs not the point here. Your next trader will be a loser or a winner. You cannot predict with a certain probability what the outcome will be. Or do you know in advance what other traders will do after you entered the market? So: 50/50!

By the way if someone has this crystal ball, PLEASE write me a PM!

Best regards,

Malvolio

Last edited by Malvolio; March 23rd, 2012 at 04:11 AM.

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