Probability Theory | Why You should NOT Day Trade nor Gamble (Gambler Ruin Problem)
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- Опубликовано: 20 сен 2024
- When it comes to day trading in cryptocurrency market or even stock market, if you just flip a coin for every trade, it’s just a matter of time when you will lose all your money, but if by some magic, you can tilt the odds on your side, you have a great chance of success.
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You forgot to mention theory of probability favors someone who follows the same strategy and discipline everyday for years...those are the ones making money in my opinion
Facts
Some people would rather convince themselves that it is just not possible rather than put in the time and effort of becoming profitable.
So don't bet on flipping a coin. This is not day trading.
lmao
Glad I watched this video. This is the perfect example why achieving high levels of education won't make you money in the market. Probability is the most important aspect in trading. And here is how you put the odds in your favor. Place small sized bets and add to those positions as the stock moves in a positive direction short/long. By starting with small size you minimize your risk on any trade if it goes against you right away. This video only illustrates how most people trade, which is go all in and hope. That's equivalent to flipping one coin 100 times. However, it's a whole different game when you diversity and you flip 10 coins 100 times each. That's how you put the odds in your favor.
All this is based on the preassumption that someone buys and sells randomly. Gambling is gambling. Gambling CAN be gambling.
Trading is analyzing market trends and information, not flipping a random coin on up or down.
That's what every trader does and yet 90% of them still failed
Where did you pull that statistic from? Straight out of your behind. Besides, even if 90% of traders fail, it still does not indicate that the market is simply probabilistic function. It just means that those 90% does not have complete information or skills necessary to make consistent gains. Markets are a function of cause and effect - humans making decisions of buying and selling and reacting to new info. Not random probability.
No, it is about Money Management and Emotional Discipline, most traders make Small Profits, but Huge Loss(it should be opposit to get success)
@@Aimstone yea dude, psychology.
@@Aimstone why do most of the new business owners fails? It's the same thing lack of knowledge
Self discipline is very important in day trading.. If you think for daily money from trading then everyday you will lose more than you expected..
It's silly to reduce a much more complex market dyanamics into a coin flip experiment. Though I agree day trading has a very good chance of leaving one broke, market forces do not always work with a +/-1 move. Also, no one puts all the money they have in one trade. On a large enough timeframe, markets always move upwards (not a specific stock), and the direction of markets are fairly predictable on a longer timeframe (not on a 5 minute chart). Why trading does not fit in the equations of this video is, markets might move up, down, or not move at all on a specific timeframe. And there are strategies that one can employ to make money on all three of these events - it's not always a 50/50 game. What ups the odds of winning is position sizing, portfolio balancing, understanding of volatility, and reduction of emotion based/revenge trades.
Word.
Stop avoiding losses. Losses is inevitable.
1. Cut your losses minimum
2. Maximize your profits
How to day trade:
1. Learn risk management
2. Find a strategy
3. Repeat the strategy
When I trade I risk 1 dollar for every 2 dollars I have potential to make. I never sell until it hits either point. This means I only have to win 33% of the time. It is not hard to win 33% of the time. Most people just don't have the discipline to stick with it.
SL’s tend to get hit when I apply this logic
@@richallen7959 that’s the point. You should be comfortable with losing
It's the same thing 1to1 or 1to3. The price have to travel twice the distance instead of 1 distance so basically it's the same. It's not 50/50 anymore if your risk reward is not 1to1. The point is you will breakeven in the long run in both sinario. Except the trading fees will be minced from the 50% you have won. You need an edge to pay for those fees plus some profit for you. Now finding that edge is the hardest part lol good luck
@@itslike123word
People don't notice this
Who's already profitable here?
*Tradeing is more about Money Management and Emotional Discipline, then Technical Analysis increases probability, here you RR ratio is 1:1 but it should be 1:2*
MGR the video is accurate if you have no trading edge = gambling. A 1:1 risk:reward and 50% win: loss ratio is the reason 90% is traders fail. But the video shows that a 55% win ratio and 1:1 risk:reward gives a 86% probability of doubling your account but you need to trade systematically. This require risk management and disciplining you’re emotions. Casinos have an edge and they restrict the bet size because they need a high number of games for statistics to play out. Similar with how insurance companies are profitable. So with a 1:2 risk reward and a higher winning percentage, the trader becomes the house = trade like a casino. This is not gambling but is like a professional poker player. Like any professional, this requires a ton of study, practice, experience, accountability, mindfulness, skill, patience, discipline. Trade like a sniper = eliminate overtrading and cut losses quickly. Thank you for the video. He explains it really well and for me he shows you what’s required to become consistently profitable and the difference between the 10% who win and the 90% sheep that get slaughtered.
Hey, sorry I didn’t mean to post as a reply to you and sound preachy. I can tell you know what you’re talking about and I agree with you. I intended to post in the general post area to everyone.
@@RaptureReady2025 have you become profitable with this common theory?
@Rich Allen I’m profitable but not bc of a math theory 😀
@@RaptureReady2025 If you had to sum up the most important advice for being consistently profitable trading, what would it be?
You started the video by saying that day trading is like flipping a coin and making $1 with p and losing $1 with 1-p, and then the conclusion is: if you flip the coin when day trading you will loose your money. Your Mathematical knowledge is good but the way you formulated day trading is not that simple and can be improved.
gambling I don't like I was a line manager a sportsbook offshore, but in this gotta protect your profits, I hodl and recently bought more, I only sell when I really see the spike and know that it will have to go down and purchase more with profits, so I wait. one day I will cash out.
Great!
I think that you the most honest and knowledgeable youtuber out there
Have you cashed out ?
@@richallen7959 nope
Consistency with strategy and money management are the keys to bias the probability of success. Large sample size or large number of trades help to realize profitability. Being consistent is covered by trading psychology.
If you are truly making random entries, the probability of winning is actually more like 40-45% because of the market spread. So if you're just trading on random the probability of ruin is probably even worse than you say. However, if you're trading with an edge you'll probably have a skewed risk reward in your strategy. For instance, a good scalper might win 45% of the time, but when they win they make 1.5 times more than when they lose.
But I think the larger point is still correct. If you're trading just at random, you are extremely likely to make money. However, the market is not truly a random walk.
A world of probabilities
Exactly!
Your logic is flawed a bit. The assumption is that the market is completely random and discounts the fact that there exists a bias in the market to buy at certain values of an asset and a bias to sell at a certain value. This bias is true, because central banks have an incentive to keep their nation's currency floating in a 'good' enough relation to the other country's currency, this is because a country's exports and imports are tied to their aggregate supply or demand of their currency. Because currency moves in relation to supply and demand, there isn't a random walk, there is volatility, but the market does not move in random waves, otherwise an entire nations's economy could not be understood in terms of their currency, which is what all assets relate to.
I agree with you. But I think you are talking about the long term picture of currency markets. The guy actually talks abouy day trading like in a 1 or 5 min chart
Jessiedee Mark Gingo time frames are not necessarily that lucrative when it comes to trading. I trade forex but I base my trades on stronger reversal signals. Monthly levels, economic news etc... I hold my trades often for weeks and the result is a better return.
Most traders will lose their money over trading trying to scalp lower time frames. It’s better to trade the old fashion ways... buy / sell assets that the market doesn’t want right now and hold until it does... this is the only true way to get into a trade “early”
Always think probabilistically
If I enter a random market and pick a random direction (short/long) and aim for a 1:1 risk to reward, my probability should be 50% right?
I know of people taking about day trading on 1 min to 1 sec timeframe.
Even if your batting average is 47% with proper position sizing and risk management you can absolutely make money. If it’s 50% you will definitely make
Money, and if it’s 60% or more (which is what a professionals batting average is) you can “bet” you’re making a living.
This analysis is purely based on Roulette type Gambling. Trading is not about always winning, its about money management, starting small, hedging your position, avoiding jackpot trades and limit prediction to minimum and letting the market make a trend. !! There are mainly two types of traders: 1st type: Losing little most of the time and winning big when market crashes or makes a trend. (Option buyers) 2nd Type: Winning small most of the time, but losing big when market goes wrong (option writers)
True. Day trading successfully requires a plan to shift the bias in your favour. There are many ways to do this and it takes discipline and trained psychology.
thats why you analyze graphs correctly and know what you're doing to rig the probabilities
Interesting. It's true that most day traders imagine that they have some kind of edge, when in fact they have none.
It's all a Matt of time before y'all will realize that he is right
If you suceed somehow probability was on your side via edge or luck period!.
All those saying 1:2 RR don't you know that as you increase your RR the probability of success reduces automatically???
Using a lesser % like 1% of your account is horrible if probability is against you it would take a very long time but your account will still blow
❤
I'm a full time day trader using probability and I have been making good money. The key is to create a strategy where you have an edge.
Here's a hint, I previously count card in the game of blackjack. When the count is in my favor, I bet high amount. When the count is against me, I bet low amount. Even though my win rate is slightly below 50%, at the end of the day I will make money because my betting strategy gave me an edge.
Likewise, if you create an edge in your trading strategy you will make money at the end of the day.
This is why i do two things:
1. Keep all the coins far away when i trade
2. I trade from abroad - which makes it night trade.😂
Your Risk to Reward 1:1 is bad (1:49)
Wrong. Roulettes have 3:1 bets and you will still lose money. It's about EV not reward:risk
@@Corpsecreate no, you got wrong both trading and roulette probablilities
@@danielracovitan9779 lol, it sounds like you've never been to a casino if you think I'm wrong mate
Without doing any math problems, if the probability of winning is 47%... Of course, you would lose all your money in the long term. You can increase probability through technical analysis, similar to the way a master poker player can pick up patterns and count cards. Day traders seem to fail... But swings traders who play larger market cycles tend to have better odds of not losing.
Well every day trader conduct technical analysis, and yet 90% of them still fail, yes swing trading is a better way to tilt the odds on you side, but long term investing is the best way...
Aimstone, how can you tilt the odds on your side, by long term investing ?
1st thing is delete the word gambling. 2nd thing is u will gain points only by probability but it should be followed by money management and the only thing can boost the whole is risky - reward ratio
Problem is 90% of pokers fail too! The other poker players are better at counting carts and finding pattern!
@@Aimstonewhat about sequence in probability
thats all mindset!! if you keep focusing on the 90% youll be there with them.. if you learn from the 10%, then u can succeed! Period.
Yea, but ironically everyone who starts trading, learning from what so called 10% lol...
Ever heard of the term positive risk to reward ratio? Great video but that's what you missed and it would refute your theory.
he obviously has no clue about the trading topic
Ricky Gutierrez from Techbud Sulotions does it all the time. 📊😁
Well explained. Dont worry about the formulas just look at the results in this video. Dont trade or gamble unless u can get an edge..
Thanks!
he starts with the assumption that one trades using a coin flip ; asinine
The irony is he doesn't calculate the probability of traders using probability to establish their risk/reward-based strategies, or those who use probability to incorporate hedge strategies. I guess he hasn't gotten to that yet in his advanced math program.
This was very useful, just used this in a video and posted a link. Keep it up man!
1.50 sl (systum sl )15 target lossing 90 times with high probability (90times loss bcoz prepare for worst condition) plus when i took a trade and it goes up 4 dollars my sl modified with 0.75 is this math okay ?
So theoretically, I could just double $10 accounts repeatedly? 👀
really?
Hmm this video missed to consider risk to reward ratio. If you have 30% win rate on 1:4 well studied and backtested stratagy.in the long run , one has edge over the market.
So practically you still dont loose money if you lose 8 of your trades and win only 2 with 1:4 RR
Yes exactly
thats why u need to have a strategy.
His knowledge of trading is a far cry from his self professed (take my word for it) maths ability.
People are successful with only winning 47% of the time.
Very unlikely
If you do a trade with a tight stop loss and a risk reward of R2 you don't need a high percentage of accuracy to be profitable. When you lose, The loss is 5% of the trade. When you win, Your reward is double the investment. Go and speak to Adam Khoo about it. He's a millionaire. Your maths has made yourself look pretty average thus far.
@Public Ally hedge funds take little risk, so litte gain
he is making everthing to understand easily. Nice video. 👍
Thank you!
*"Numbers don't lie and people do"*
Unfortunately for this illustration no sensible trader goes all in 1:1 and there's also a thing called strategy which is back tested and used as an edge
If you have an edge and use proper risk management, you absolutely can be a full time trader. It isnt easy though. Definitely not for everyone. Dont let OP's failure discourage you.
This dude must have went broke trading
Excellent. Thank you for this.
What do you think about the likelihood that these daytraders advertising on youtube achieve that 68% chance of win by first getting in premarket, then having their students trade the ticker once the market opens? Or if not this, there is in effect a pump and dump by having students trade the same issues the trainer is? I dont actually know whether this is happening or they are making money from their subscribers, students... everything but day trading. Been in the market since 1994 and these young traders claiming they have a "system" is frustrating and likely costing other young traders money they cannot afford to lose. Anyway, thanks for posting this video. So much harmful fluff out there
oops, 86%
People need to remember they’ll never have 50/50 probability simply because of spread and fees
The spread is unrelated to your batting average, and these days platforms have no fees. And you can absolutely have 50% or higher batting average if you take the time to learn how to trade properly.
@@IslandInsanity the best you can do is ensure fees and spread remain as Low as 0.4% of your average price movement exposure but again, technically you’ll never have a 50/50
@@MrPrush-ji4gs I’m a professional day trader bud. My batting average is 65%. Spread is the difference between bid and ask and if the spread is large then the stock is illiquid and not tradable. There are no fees for placing trades on most platforms now such as ThinkOrSwim.
@@IslandInsanity “I’m a professional day trader” bahahahahahahaha.
FYI I think you have a misunderstanding about probability. One could have a stop loss target of $650 and a take profit target of $1037 and obtain a win rate of 43% or so, it varies By the way no, you’re not a profitable “day trader” because “day trading” is trading noise and not profitable especially for a retail trader like you. Think or swim is a trading platform not a broker, td Ameritrade is the broker. Yes td Ameritrade has fees and spread falls into that same category as that. Why don’t you add me on Snapchat so I can show you my $600,000 condo $120,000 in cars and my $160,000 brokerage account? I’ll show you my real tier 2 margin account with td Ameritrade, with the login included. I bet you wouldn’t show me your account because I know you’d use a paper trading account hahahahahahahahaha
@@MrPrush-ji4gs lol ok dude... good luck with all that. It’s weird that you say you have a brokerage account, yet don’t seem to believe a retail trader can be profitable... why have the account then? I don’t even want your answer. I’m gonna go enjoy my life. Cheers.
There are so many layers as to why this is wrong. However, the reason most lose is bc they trade in the same way you described, on a coin flip. You need to make more when you are right than what you lose when you are wrong. You can find a statistical edge (winning percentage over 50%) through pattern recognition, etc. but it's not even necessary. You can win only 35% of the time and still make $ if you have a solid natural risk:reward (holding winners for more, cutting losers short), couple that with dynamic risk:reward (adding to winners). If you can form a strategy with a +50% winning percentage that pays 2-3 times your average loser, you can make a pile of $.
That was a one to one ratio. Off course that is true. Run the model again from 1.5 to 3 win ratio to 3 to 1 vs 1 to 1
Wrong. Roulettes have 3:1 bets and you will still lose money. It's about EV not reward:risk
A good system requires high probability of success (win %) AND a 1:2 risk to reward ratio.
Question for you, what is your current job?
Why asking?
@@Aimstone its all good. thank you
@@Aimstone 'Cause is clear that you're a failed trader.
it is fallacious to say that "numbers don't lie people do" - - Remember - it is PEOPLE who INTERPRET the numbers and - numbers on their own don't do anything!!
As a mathematics major student I'm not agree with you. You didn't cover the main parts.
If all the people in comments are able to be successful day trading, why are they wasting their time watching this video, and why are they wasting their time arguing with the author of this video? You should be day trading, not wasting your time on videos you don't agree with. :D
This guy obviously hasn't heard about win rate & risk to reward ratio.🤣
It calls risk adjusted returns.
Not saying it isn’t very difficult, but have you ever considered that you aren’t good at it?
The thought about day trading and gambling from personally involved with them for a bit is that they're similar to videogames but with guit-proof. Basically they're both have something that seems like your skills matter, but they're superficial because they'd ended up profiting at the end. The dopamine from winning and the encouragement when losing will keep people with less logical intelligence succumbed to the hell loop. People want to have fun like playing videogames, but the society stigmatized the videogames as something bad and the waste of time and potential. So with the ability to "earn" money from doing something similar to playing videogames, people would flocking in without remorse because they could have fun while earning money. Like dang! how deep the corruptions in our world is now surfacing for me. Well I didn't involve in real money trade and gambling, so it's fine for me. It's nice that they're providing water testing for everyone and let them "decide" for themselves. After everything connected, I'm super duper depressing now.
This would actually be true if people traded based off the flip of a coin, without any edge over the market, (tested strategy) and had a risk reward ratio of 1:1 every single time.
Day trader = gamblers = poor man mindset = fools
This is for 1:1 payoff.. should use risk of ruin equation to find risk and probability
The math is good.. but you have not replied yet about the risk reward ratio.. because no experience traders will enter a trade with more risk than reward..
Thanks Aimstone, you do great videos.
Thank you.
Good attempt, however, your maths are wrong at many steps. Many of your assumptions do not hold in real life. For instance, price movements are random in direction, yes, but not in magnitude. Price movements usually look like a Gaussian bell. Hence, if for example it happens that you get a rare case on the tails of the bell you are very likely to hit your limits in just one step of your random walk.
To make the story short dont gamble you Will lose.😊
I’ve never seen anyone do it better!!
let me debunk, in trading there is this thing shorting, when you calculate youre theory from buying stocks and by doing that you lose 47%, to win 53% you have to short, sounds ridicilous, of course becasue that probablity thing is so shit it so stupid. Trading is about reading charts and markets. There are small lies, big lies and then there's statistics
You forget Risk reward!
trades i wish i held,
300 shares of google @113$ on its ipo
10,000 shares of csco at 6.60$ at its nut bottom 2008
shorting apple at $12 and covering at $13 instead of buying a 1000 shares / pre stock split price in 2001
@Aimstone Where did you get 47% from? Why would i bet on that?
Lot of math to prove you can't do something a lot of my friends, and I, have been doing for 40 years.
If you believe you can't, you're right.
you took that p value out from your arse ; in trading it is over 70% if the trader TRADES not gambles (sop losses, high reward/risk ratio etc)
Awesome my friend... Keep up the good work...!!!
Your word "some magic some how" is a very sarcastic comments . That's not the right mindset of a trader but anyway thanks for the video brother.
Trading is doing your homework in the market, do your research on the trends and news see whats going up, if you put your money on a stock and hope it goes up then ya your gambling and you should lose your money.
Why did he made up P=47% as an example instead of 50% nor 100%?
Oh... Maybe because he's just trying build a probability to make his point to generate views for his RUclips channel?
All I hear in this video is "Let say..." this "Let's say..." that.
I think he Say too much of nothing wasted of time.
Oh hey guys look, another failed trader masking his insecurity
Explain all the successful traders aim
Oh that's right, you can't as your math is also off.
Exactly, I was thinking the same thing. His ego makes him an emotional trader and so he lost before he even started.
hodler = Failed Trader
1:39 You also make videos on new media, right? Right? Do you have a second channel?
From comments I see just a few people gave understood what you really mean! I agree completely with you and I would say while flipping a coin has a 50% chance to win, the chance of day trading is much much less and it’s about 10% chance to win against 90% chance of losing. I have experienced it many times. So try not to lose more your money for buying technical analysis signals or courses!
just properly learn how to trade ; don't project your lack of competence on all traders
10% vs 90% based on what? hahahaha
if you don't know what your doing, you can lose everything, we invest in futures and options, turning $2,000.00 into $2,50,000.00 in a short period of time.
LMAOO thanks for the laugh pal
You made it so complicated that only yourself would understand what you are saying
😅😅😅
Baseball players batting average is 0.300 or less. But, they make millions of dollars. I think day trading is like that. And, this is why traditional college education makes billions of people unhappy life.
Trading with r.r of 1 to 3 or 1 to 10, you can win all the time. plz do a math on that.
Yea but the problem is that your probability goes down the higher the reward to risk. Sure you lose 1 x but you do it more often than winning 3x. So you need to have some sort of edge otherwise risk to reward won't save you!
What about a ML model with 0.75 r2 in the test set to turn odds in your favour?
ML is jusy another way to turn the odds for you. Generally speaking, the market is very complex that no perfect model for it yet. Consistency with strategy and risk management are really the keys
Day trading != Gambling !
Thanks alot for keeping update in Crypto-Market brother , Yes u are the hero of this Platform....stay blessed....LOVE FROM PAKISTAN
Nice vediooo. Hey can you do a video on Apollo? They just finished their CDE recently
What's the chance of that happening
This is not how you trade at all.
Trading is not gambling
Your premise is incorrectly based on a 1:1 ratio and the fact you don't know that reveals the rest of your argument is worse than baseless.
Thank you !
Great!
There are trading methods with 70-90% winrate. You know nothing about trading.
Buy low and sell high = guaranteed win
Not guaranreed. These charts do hit zero sometimes.
You’re so wrong but still wanna sound so smart , first of all trading is not gambling and all your theories are based on the assumptions that traders are randomly taking trade , which is not true for the experience traders , and the same probability game is what make a better trader if combined with the risk of ruin and a good strategy
All the failed traders disliked this
Didn't know you were that smart
You completetly lost me at 4:32, " you will not prove it, because no one will understand anyway".
😂😂😂
seriously
Oh yeah, this is gambling.
What's the probability I'll give you a thumbs down...?