Trading a Sample Size & using Baseline Probabilities
1. The end goal being to quantify edges and limit the amount of emotional response that we give our trades. Using sample sizing is important to execute trades consistently. When the variables that define your edge are present, you execute no matter the circumstances. This also avoids previous experiences from hindering your ability to execute new trades. Each trade is independent from the last however the true measurement should always be over a series of occurrences.
2. There are various ways to identify a baseline probability in whatever it is you are examining. If a baseline probability is given to you, it makes sense to use it. It helps keep our expectations in check and is a good indicator of what the market is actually implying. Our minds are generally not good at thinking in probabilities as we tend to overestimate the chances of unlikely things happening. For some reason it's in our programming to act on impulse based on what we see initially, rather than to assign a probability to a situation.
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Software used for Trading, Market Data & Automated Trading:
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Disclaimer: The content that this channel provides is intended for educational purposes only. Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. The risk of loss in trading commodity interests can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition.