On the unequal probability of a price move up or down - page 4
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If you don't have a purpose to flub, but really can't understand - I'm unlikely to be able to explain it to you personally. But not because I have an arithmetical error, but for other reasons.
I'm interested in these equations in the figure.
Now look - if you take ANY numbers 2/3 and 1 for the example, you get:
(2-1)/(3-1) = 0.5
(2+1)/(3+1)=3/4=0.75
These are your "unequal probabilities".
I'm interested in these equations in the figure.
...
These are your "different numbers".
You don't even know what "different" "numbers" we're talking about... I was strengthened in my conclusion, but still I will risk to draw your attention to these "numbers" (or rather their modules): 0.0070 and 0.0077.
Their meaning is simple: if we consider as equally probable events that EN reaches values (at a certain moment t0 in the future) situated at some delta (deltaEN) above and below the last known value of EN, then we will see that the corresponding EP values (at the moment t0) will be different from the last known EP value by unequal (modulo) amounts.
Conversely: if we consider that EP with equal probabilities (50%) will reach some values below and above the last known value, we will find asymmetry in the movement of EN.
The final conclusion is also obvious and healthy: the market is efficient in terms of earning opportunities, not in terms of deltas on price charts, because to move from the latter to the former we need to account for changes in the value of the currency in which we calculate gains/losses.
You did not even understand what "different" "numbers" we are talking about... I have strengthened in my conclusion, but I still risk to draw your attention once again to these "numbers" (or rather their modules): 0.0070 and 0.0077.
(2-1)/(3-1) = 0.5
(2+1)/(3+1)=3/4=0.75
Well, going on:
0.5-(2/3)=-0.1666667
0.75-(2/3)=0.083333
So?
Different numbers.
You have missed the most important word: never. It is stated that the probability of a price move up or down for any pair (except perhaps a pair with a specially constructed quote currency, but that is a separate topic) is never 50%, for any adequate delta value (up or down). And it is not just stated as self-evident, but proved by simple reasoning related to coordinate transformations (quote currencies). If this is self-evident to you, congratulations, you are quite sane.
There you go again with probabilities. Prices are driven by supply and demand, not probabilities. Install a stock exchange terminal andopen a chart of a low-liquid asset. The price can stand still for a very long time.
Forget about probabilities and the market.
If you add ANY number to the numerator and denominator of ANY fraction, the result is NOT equal to the result when you subtract the same number from the numerator and denominator
the price can stand still for a very long time.
And how does that contradict the fact that after a while it is bound to move up or down by a predetermined reasonable delta?
If you add ANY number to the numerator and denominator of ANY fraction, the result will NOT be the same as the result when you subtract the same number from the numerator and denominator.
You begin to grasp the essence of the matter. A little more effort and you will be able to understand what it's all about in general )
... to pass off a simple arithmetical act as an estimate of probabilities in the financial markets ...
Welcome to reality. That's the way the world works.
I see that the discussion has gained momentum, I'll allow myself to remove myself for a while so that I can then have the incomparable pleasure of reading the thoughts of some of the participants in the thread )