Trading and Probabilities

Hi all! I'm new to this message board and Forex as well. I've been studying the markets for a few years now and I've often heard the advice that it is very important "know the probabilities" before making a trade. To be honest, I don't really know what Mark Douglas and the others are taking about, but I would like to learn. Are they speaking of the chances of any given trade working out? If so, how does one determine this in advance of a trade? It would seem almost impossible as the market has yet to complete the movements in question. I've been looking around for information on this subject but cannot really find any instructions. If there is someone here that understands this topic, would please offer an explanation? Thank you.

Simply put, assess market conditions and determines that odds are in your favour. For example, one that wants to follow a trend, will take trades only in a certain direction based on his belief regarding the current trend, therefore putting the odds in his favour[subject for debate]. Another example would be buying at support areas and selling at resistance, increasing probability of momentum picking up rather than buying into a resistance with a very low probability of a trade working out.

Another approach is extensive and proper studies of statistical probabilty i.e quantifying the odds into a percentage chance of certain things happening based on a large historical data series e.g fibonacci ratios, 1 and 2 bar patterns, compound patterns, volatility etc etc etc. This can be a laborious task but is very interesting. Look at this thread:

http://www.forexfactory.com/showthread.php?t=27624


Rgds
Bob

Doing statistical studies are much easier if you can program (in MQL for example), there is a whole world of statistics and data mining methods which can be exploited to give an edge. I find data classification methods particularly useful.

Thank you Bob and Craig for responding to my question. Your answers were helpful!