I haven't read this thread, just scanned some posts and have prob. missed a lot.
Strikes me the commonly used 50/50 coin toss analogy is badly flawed because a SINGLE trade really consists of TWO trades/decisions, the entry and the exit, each of whose probability is independent (1/2 * 1/2 = 1/4). In practice (in trading), the odds of a successful round trade (entry and exit) from the start are 1/4. The problem with the coin toss analogy is that the entry and the exit are the same thing, they're identical (the one guarantees the other; it's either a win or a loss on the single toss of each coin). Not so at all in trading.
Throw in spread/ commission/ slippage ("the vig") and overtrading, and the odds of any one trade (entry and exit along with costs) are prob. 1/5.
That closely approximates the oft-repeated figure that 80-90% of traders fail (and basically mimics the so-called Pareto income distribution rule of thumb that 80% of the money/success etc. falls to 20% of the people). The 80-90% who fail are constantly being recycycled/replaced in the Darwinian ecology of the market (see Victor Niederhoeffer, The Education of a Speculator). The 10-20% max. who win stick around (the same folks).
The fewer decisions the average trader takes (=the longer the TF), the more likely they are successful (and this fits with all the behavioural science stuff). And it goes to the first post about being right on the bias (higher TF=fewer decisions forces the right/focus on bias/trend > noise, or high TF S/R > noise).
(Assumption: in practice, it's never the idealized logic of a 50/50 coin toss analogy in the lab with a normal distribution, but a biased distribution because of behavioural/cognitive biases ill-suited to trading, same a tilted roulette wheel, etc).
Strikes me the commonly used 50/50 coin toss analogy is badly flawed because a SINGLE trade really consists of TWO trades/decisions, the entry and the exit, each of whose probability is independent (1/2 * 1/2 = 1/4). In practice (in trading), the odds of a successful round trade (entry and exit) from the start are 1/4. The problem with the coin toss analogy is that the entry and the exit are the same thing, they're identical (the one guarantees the other; it's either a win or a loss on the single toss of each coin). Not so at all in trading.
Throw in spread/ commission/ slippage ("the vig") and overtrading, and the odds of any one trade (entry and exit along with costs) are prob. 1/5.
That closely approximates the oft-repeated figure that 80-90% of traders fail (and basically mimics the so-called Pareto income distribution rule of thumb that 80% of the money/success etc. falls to 20% of the people). The 80-90% who fail are constantly being recycycled/replaced in the Darwinian ecology of the market (see Victor Niederhoeffer, The Education of a Speculator). The 10-20% max. who win stick around (the same folks).
The fewer decisions the average trader takes (=the longer the TF), the more likely they are successful (and this fits with all the behavioural science stuff). And it goes to the first post about being right on the bias (higher TF=fewer decisions forces the right/focus on bias/trend > noise, or high TF S/R > noise).
(Assumption: in practice, it's never the idealized logic of a 50/50 coin toss analogy in the lab with a normal distribution, but a biased distribution because of behavioural/cognitive biases ill-suited to trading, same a tilted roulette wheel, etc).
