Territory of probability

[Dmitry]

I propose to discuss here the methods and techniques of using probability theory to build trading systems. I will present my thoughts on this subject in the form of theses:

1) The probability of trend continuation in any part of it at any moment is higher than the probability of its reversal. Hence, the golden rule of trader: trade only with the trend.

2) The probability of winning with a random entry and the same TP and SL tends to 50% with increasing SL and TP.

3) The probability of winning when trading with a dynamic lot is lower than when trading with a fixed lot. I came to this conclusion on my own. I will try to prove it: let's say we have TS, which alternately triggered TP and SL, i.e. SL-TP-SL-TP-SL-TP, while SL = TP. Spread is not taken into account to ease understanding. When trading with a fixed lot, we obtain for example: -$10+$10-10$+$10-10$+$10$=0. When trading with dynamic lot we will get -10%+10%-10%+10%-10%+10%+10% and it will not lead us to zero profit, but will be a loss. For example, the deposit was 100, we got: 100-10%=90; 90+10%=99; 99-10%=89.1; 89.1+10%=98.01; 98.01-10%=88.209; 88.209+10%=97.0299, which was needed to prove, the loss is visible.

I am waiting for your comments and constructive criticism if anyone does not agree with my third thesis. If anyone has any other thoughts on the use of probability theory, please speak up.

[Mario]

The market is 5 years old... at this stage, my thoughts on the above : the market, it's an art. no probability, no probability works, just like logic, except that female logic is more applicable here :) it's like music (I've been making music myself for 15 years)... There are a ton of synthesizers, ways to write music, but in the end, it all doesn't work, and ONLY talent multiplied by experience and hard work. trying to approach the market from the standpoint of probability theory is as stupid as writing music from the same standpoint. In the end you will end up with something similar to a musical composition, but the results will be disappointing. if you go further in comparison, you need to understand and, most importantly, feel the rhythm, the tone, the idea from within, otherwise you will fail or make a fake. often, successful market trading is compared to controlling an aircraft, but I think it is more accurate to compare it to playing the piano.

[Dmitry]

maryan.dirtyn:
The market is 5 years old... at this stage, my thoughts on the above : the market, it's an art. no probability, no probability works, just like logic, except that female logic is more applicable here :) it's like music (I've been making music myself for 15 years)... There are a ton of synthesizers, ways to write music, but in the end, it all doesn't work, and ONLY talent multiplied by experience and hard work. trying to approach the market from the standpoint of probability theory is as stupid as writing music from the same standpoint. If you go further in comparison, you need to understand and, most importantly, feel the rhythm, the tone, the idea from within, otherwise you will fail or make a fake. They often compare successful trading on the market to controlling an aeroplane, but I think it's more accurate to compare it to playing the piano.

I fundamentally disagree with you. By using the techniques of probability theory, you can achieve a statistical advantage, i.e. a mathematical expectation of winning. About music - there is something similar to truth in it, but it also has to do with probability. I also realised a long time ago that no TC works as I would like it to, so I am interested in various probability theory fomuses.

[Mario]

statistical advantage can be achieved, but there is no money)

"No matter how many times you roll a letter cube, you can't get a poem.") if someone has thrown them a billion times before you, you have a statistical advantage to get at least a row... but it's unlikely to happen in your lifetime)

[Dmitry]

papaklass:

3. You've got it all wrong. The probability of winning or losing is determined by your TS strategy, not by whether you are trading a fixed or dynamic lot. But you correctly noted that with dynamic lot and change of volume of position at each trade, the volume of losing position will always be more than the volume of last profitable trade. But this does not mean that your TS will result in a loss, namely:

a).If the number of losing trades will be less than the number of profitable trades, such a system will result in you being in the black.

б). If Take Profit > Stop Loss, you will be in the red.

в). You will not be able to change the volume of your open positions on every trade, but you can bind these changes to a certain level of your deposit. For example, as long as your deposit is within the range of 1000 - 1500 you open with 0.01, if the deposit has moved into a new range of 1501 - 2000, you open with 0.02, and so on. In other words while your deposit is within the defined limits, you trade with a fixed lot. If the deposit has moved into a new range, you change the lot and trade with a fixed lot again until your deposit moves out of this range.

There are many more variants, but I will stop here.

I wasn't confusing, I meant the probability of winning in general for the trading system (expectation of winning). And in point "c" - I absolutely agree with you, I wanted to paint the same thing, but I was too lazy to do it. I'm not sure what I mean by that, but I'm not sure what I mean by it.

[Dmitry]

maryan.dirtyn:

statistical advantage can be achieved, but there is no money)

"No matter how many times you roll a letter cube, you can't get a poem.") if someone has thrown them a billion times before you, you have a statistical advantage to get at least a row... but it's unlikely to happen in your lifetime)

I disagree with you again, the theory of probability is a great thing, for example, all the same golden rule of trader - to trade only on the trend - is derived using the theory of probability. By applying in practice techniques such as those I cited in the first post you can achieve increased statistical advantage and mathematical expectation, and therefore money.

[Sergey Petruk]

maryan.dirtyn:
.... the result is something like ..... but the results are disappointing.... however you want to understand and most importantly feel the rhythm, the tone, the idea from the inside...

There are so many directions and styles in music, some like classical, some like metal, and some combine the two - they all make music, create, gain experience. Sometimes even Buranovskiye babushki shoot :) / sometimes even Buranovskiye babushki shoot :) /.

It is the same in trading - for the algotraders, mathematical methods are important; for supporters of manual trading, intuition /unspecified rules/ may be applied, and some go for a combination.

For myself I support trend trading, I know that due to irrationality of forex, the statistical data of TS plays a major role - mathematical expectation, at least credit for my trading method is formed.

Also I try to use the ratio SL to TP - 1:3 with the possibility to close earlier, because in the long term this ratio contributes to the growth of the deposit. But I'm not very good at probability theory.

[Dmitry]

vspexp:

I also try to use SL to TP ratio of 1:3 with the possibility of closing earlier, because in a long horizon this ratio contributes to the growth of the deposit. But I'm not very good at probability theory.

Why exactly the 1:3 ratio and how does it mean the possibility of closing earlier? Do you trade manually? And why does it contribute to the deposit growth in the long run, or is it based on intuition?

[Sergey Petruk]

1:3 - way to increase the probability of profitability of the TS in the long run, and to minimize the possible loss I use closing the position before the preset stop / on the signals /. TS is semi-automatic, multicurrency, intraday. I found somewhere mathematical proofs of its validity in 1:3 ratio, and in dynamic stop - closing before SL triggering - decision is made as a result of testing trading method used.

[Anatoli Kazharski]

papaklass:

On the subject of trend trading. Who will close a position in this case without waiting for the stop to trigger?

You can close. You can wait for the stop loss. The most important thing is what to do with it. )))

[Sergey Petruk]

papaklass:

Who would close a position in this case without waiting for a stop to be triggered?

ZS: What is going on: stop hunting or trend reversal?

I cannot say/know - without knowing the pair (and the TF). My TS analyses price behaviour on several TFs and taking into account the interaction of several given pairs to make trading decisions. And I don't analyse what happens in the market, I just follow the price.