I have a theory that I'd like all you mathematical geniuses to tear apart for me please. It is simply this...Using a market bias AND stop loss you can improve your odds of winning from 40% to 66% using the following:
Theorems
1) There are only 5 possibilities inherent in any trade:
i. Long - win
ii. Long - lose
iii. Neutral - do nothing
iv. Short - win
v. Short - lose
This makes the chances for wining 2 out of 5 or 40%
2) By chosing to enter in any particular direction you eliminate 3 of the above 5 possibilities thus improving your odds to 50%.
3) There are only 4 possibilities when trading after entry:
i. Enter - win big
ii. Enter - win small
iii. Enter - lose small
iv. Enter - lose big
4) By using a stop loss you eliminate 1 of the above 4 possibilities thus improving your odds of winning SOMETHING to 2 chances in 3 or 66%.
5) These choices NEVER change and are always constant in the market.
Conclusion: Chosing the correct market bias, and using a reasonable stop loss produces a 66% chance of wining.
While clearly we want to choose the RIGHT market direction, and enter at the RIGHT time I found this little tid bit of clarity really has improved my outlook on the market.
Someone please introduce a bit of reality for me.
Theorems
1) There are only 5 possibilities inherent in any trade:
i. Long - win
ii. Long - lose
iii. Neutral - do nothing
iv. Short - win
v. Short - lose
This makes the chances for wining 2 out of 5 or 40%
2) By chosing to enter in any particular direction you eliminate 3 of the above 5 possibilities thus improving your odds to 50%.
3) There are only 4 possibilities when trading after entry:
i. Enter - win big
ii. Enter - win small
iii. Enter - lose small
iv. Enter - lose big
4) By using a stop loss you eliminate 1 of the above 4 possibilities thus improving your odds of winning SOMETHING to 2 chances in 3 or 66%.
5) These choices NEVER change and are always constant in the market.
Conclusion: Chosing the correct market bias, and using a reasonable stop loss produces a 66% chance of wining.
While clearly we want to choose the RIGHT market direction, and enter at the RIGHT time I found this little tid bit of clarity really has improved my outlook on the market.
Someone please introduce a bit of reality for me.