Trading Probabilities Versus Certainties (w/ Dave Keller)
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- Опубликовано: 20 сен 2024
- Dave Keller, CMT, president of Sierra Alpha Research, suggests traders should look at probabilities rather than certainties when making investment decisions. He says that nothing in the market is for certain, and acknowledges the imperfections with financial analysis.
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Trading Probabilities Versus Certainties (w/ Dave Keller)
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Transcript:
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Hi there, my name is Dave Keller. I'm the president and chief strategist at Sierra Alpha
research based in Cleveland, Ohio. So, I help financial advisors and institutional investors to make better
decisions. And do that in a couple different ways, help them maximize returns, manage risk, and bring
more mindfulness and awareness to their investment process. I also enjoy incorporating nonfinancial topics
into financial topics. So, I'm a student pilot, I'm a musician. And so, a lot of the best ideas I think you can
bring as an investor are learning from other disciplines, learning from other activities. And I write a blog at
marketmisbehavior.com.
The words that I rarely hear investors mention that they should mention way more often than they do is I
don't know or I'm not sure. And I think I'm not sure is the more painful of the two. Because if we think we
know something, we all of a sudden decide we absolutely know something. And if there's one thing that is
absolutely true, is we don't absolutely know anything about investments, no, we just don't. Everything is
based on probabilities and never certainties.
The reason why we have so much trouble with that is because we are hardwired as humans to want to have
certainty. We want to feel that experts know things that are unknowable. And we want to feel that there is
an investment process which will be at perfection and won't have any issues. But if you've traded or invested
one day, you'll know that that's not the case, right? Things are always based on probabilities. And the best
thing you can do is set yourself up for a probabilistic set of outcomes. It's never for what's definitely going
to happen.
The time recently, when that really hit me was the first time I've done better and better going on financial
media, on television and online TV and things like that. But the very first time I did, I went on and I gave a
very honest investment approach. I said, I'm really not sure what's going to happen. But I could see this
happening. And I could see this happening. And if x happens, I would bet on this. And if y happens, I'll go
on ahead.
And you know it was fine as about a five, 10-minute interview, like right on the way to the elevator, he
said, it would be great if you could just be more certain about exactly what you're expecting. And I'm
thinking to myself, okay, and I got on the elevator. I'm thinking, well, that makes sense. But I'm not certain
and no one really is, but we need that certainty.
So, when I go on television and I have three minutes to pitch an investment thesis, you have to imply a
certainty because you have a limited amount of time to drive home a soundbite, drive home a thesis. But if
I'm really trying to manage a portfolio or coaching my clients to look at asset allocation, it's never based
on certainties, you really don't know the answer.
Quick and too the point.
To not too
To, not too.
Why is it easier to lose than win? If it’s 50/50 chance you’re right or wrong then why do most traders lose more than win? Where is the probability in that ? Please explain .
Because psychology involved there and people always underestimate risk reward ratio on each trade
Because of risk management...you have a $100 account ,you have 5 losers that is $50 and you have 5wins and in a 1:2 risk to reward,you would gain $100 dollar,which means you didn't lose your money,but when you lack risk management maybe risking $10 per trade,you see alot of traders adding to their losing position or revenge trading and maybe losing more on a single trade...rather than lose a small amount and wait for the next trade which could be a win
u have to understand edge
small wins ,small looses ,break even ,big wins but never a big loss
from one trade outcome perspective its not 50/50 (win or lose ) chance probability.
you forget the variable of what the outcome from 1 trade is.
there is 5 variable of the outcome from 1 trade perspective:
-Small win
-Small Lose
-Breakeven
-Big Win
-Big losses.
and if you count other variable , such commision , another intellectual participant , artificial intelligent, our emotional sabotages, your odds become smaller
that why from series basis, more than 80% traders fail on this bussines.
we need to hard work and have some sacrifice to our ego if we want success on this field.
Regards
4 years ago