another question about probability - page 2
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but now i have another question, that graph above was very enlightening, but what it would be for winning? could you show a graph for the winning part (80% win and 20% loss)? because
in this case above, the probability increase the more trials, but for the winning, it would increase too?
thanks
I'll disagree with that. The OP's question relates to how much he can risk (even if he didn't state it.) What he doesn't understand is that the problem is combinatorial in nature.
For the next two trials 4%. For three trials it doubles because there are two chances. For 10 trades, one could have 2 consecutive losses on trade#1&2, #2&3, #3&4, 4&5, 5&6, 6&7, 7&8, 8&9, or #9&10. Nine different ways essentially. The probability of 2 consecutive losses in 10 trades (0.20^2)*9 or 36% In 25 trades you will almost certainly have 2 in a row.
The probably of 4 consecutive losses in 100 trades is (0.20^4)*(100-9+1) 16%
It's not theoretical, it's fact, and is the nature of drawdown. That is why you can't trade more than a small percent per trade. Risk 5% you will have 20% DD every 100 trades.
"I'll disagree with that."
can't you set risk/drawdown in your trading platform?
"It's not theoretical," it's fact, and is the nature of drawdown"
so you are saying probability is an exact branch of mathematics? if he wants to go down that path, more power to him. but he needs to factor in everything: risk,drawdown etc. and especially time before he does any trials. that is higher level mathematics. what is this no trials results you list? based on?
Tom
I dont want to go through all the probability theory here but give the answer directly.
Let me rephrase OP's question for a practical usage: Given chance of losing in single trade is X, what is the probability of having at least 1 time of consecutive Y losing streak in total Z trades?
Plug the following equation into microsoft excel.
=1 - binomdist(0, Z - Y + 1, X^Y, false)
where X = Probability of losses in single trade
Y = Number of consecutive losses
Z = Total number of trades
In OP case, X = 0.2, Y = 2, Z = 20 (my assumption),
Put these value into the excel, then u get
=1 - BINOMDIST(0, 20 - 2 + 1, 0.2^2, FALSE) = 54%
Trust me, I have done a monte carlo simulation to verify the equation. ;)
if it's 54%, then wroeder is wrong, because in his math its 76% in 20 trials, a big difference. So i should use your formula instead?
my formula is the correct one and it has been used for years and up for challenge in one of the top forex forum. You could find detail explanation there.