Day Trading: Probabilities Versus Absolutes
We live in a world where absolutes are often the norm. For example, you do not need to remind me on a daily basis that the sun will be rising early in the morning. The sun rises; it is a given that the sun will rise and we don't give it a second thought.
In general, scientific knowledge deals with absolutes. Our text books describe gravity, acceleration, algebra and a host of other topics that have long been well understood and proven to be true. We do not debate or fret over these types of facts because their authenticity and truth is a given.
Most of us would like to live in a world of truths and absolutes because the outcomes of various probabilities can be ascertained and understood with precision. I often think the world of absolutes is a nice place to spend time, for the outcomes are known and can easily be assimilated into a plan.
There is another world to consider, though, and that is the world of probabilities. There are no absolutes in probability, only potential outcomes based upon past experience or hypothesized in theory.
One of the toughest and most abstract concepts to learn in E mini trading is the theoretical outcomes of any given action. Most people would like to think that if variable (a) occurs, then (b) will be the result. It just doesn't work that way in trading the ES E mini contracts, or any other investment. There is a wide range of potential outcomes from any trade, and choosing the proper trade becomes a tangled (and sometimes confusing) analysis of a variety of variables and formulating a plan based upon your assessment of the probability of success. Notice I mentioned "probability" of success. When dealing with investments there is only one probability that I consider; the market will open as scheduled on Monday thru Friday. (and even this probability is subject to various potential eventualities like a power outage, an earthquake, or a range of other uncontrollable variables)
So trade evaluation becomes a process of variable analysis in an attempt to answer one very basic question: Which trade choice will result in a profit and which trade will result in a loss. For many, this uncertainty is debilitating and their careers in the trading business are short lived. Absent of absolute truth, trading resides in the murky gray muck of probabilistic thinking. I have often, in my own mind, compared trading to those individuals who choose not to fly in airplanes; the probability of a crash, which is real or imagined, is simply more than their mode of "absolutes" in life is ready to assimilate. And so it is with trading, it's not for everyone.
In many of the articles I have written I speak often about the psychological aspects of E mini trading and attribute, to a greater or lesser degree, many of the psychological phenomena traders experience to the constant assessment of the unknown. It can be truly disheartening to find a trade that you have profitably executed numerous times and have it fail. Let's say, just for example, that a trade has a probability of success of 80%. In this trade you would have a very high probability for success. Of course, many traders fail to remember that there is a 20% probability of failure, and over a period of a number of trades, this probability will eventually come into play. Your beautiful trade set up will fail and you will be left scratching your head. What went wrong?
The answer is a simple one, but a bitter pill to swallow. Nothing went wrong, as a matter of fact the trade went exactly as it should but fell into the less probable category of outcomes. This aspect of probability is what trading is all about. Assessment and acceptance of risk based upon probability. Of course, as you take less probable trades, your risk of failure increases exponentially. The bottom line in trading is an interesting yet enticing proposition: Absolutes do not exist in the world of futures trading, just probabilities.
Questions and Answers
The trouble in many fresh traders believes that type of publicity, and go on to wipe out their accounts in less than a week. Forex mini trading is the great medicine for that.
It is not unusual to hear individuals ask about trading the "high probability" gap trades. It seems that there is a perception (by some traders) that e-mini gap trading falls into the sure-fire trade class of trades. Note: I have yet to locate a sure-fire trade in several decades of trading.
There isn't a single characteristic that I could identify upon meeting an individual that would give me reason to think that he or she could be a consistent e-mini trader. Consistent traders are a varied group in terms of background and thinking (outside the world of intraday trading.)
This is a very difficult question to answer properly, because the response is dependent upon an e-mini traders experience and goals. Obviously, a new trader should trade a single contract until he or she develops the competence and confidence to trade in a consistently profitable manner.
E-mini trading draws a wide variety of individuals who have differing motives for entering the trading business. On the other hand, most individuals enter the business seeking added income and financial security. To be sure, many individuals consider e-mini trading a "get rich quick" type of business and plunge headlong into trading with gusto, and usually disappointment.
I'm not convinced that lower day trading margins have served traders, especially new traders, and a positive way. Low day trading margins give a new trader a tremendous amount of control over a large amount of money, more money than he or she is probably ready to trade.
The growing Indian market is attracting investors on the ground of the promising and assured return. The online trading is very popular these days and most of the people prefer it for quick money.
Learn the fundamentals of committing cash in Stocks, Ties, Common resources, Merchandise, Actual estate We create Getting Inventory Industry straightforward for you with a comprehensive guide to committing. Any effective stock market buyer must be acquainted with the fundamentals of stock market committing.
Online share trading is one of the most popular financial markets in the world today; however, any people are hesitant in starting due to not knowing a lot about it. This article will help explain what online share trading is all about, how you can get involved for a low initial investment and what to consider before, during and after trading.
The stock market is mostly used to create money. . I am sharing my investment strategy as a retail investor. Most financial experts recommend investors to initially contact a financial advisor. Able to provide advice, it can ensure that the money an investor get a good return or not.
This article has discussed about the importance of Stop orders. Stop orders act like the life jackets
It is not unusual to hear individuals ask about trading the "high probability" gap trades. It seems that there is a perception (by some traders) that e-mini gap trading falls into the sure-fire trade class of trades. Note: I have yet to locate a sure-fire trade in several decades of trading.
I've been writing some about trend lines lately and noted my observation, in several of the articles, of the declining use of this valuable charting tool. I don't have any illusions that a couple of articles by a relatively unknown author will have any effect on the use of these lines; but if just a couple of traders see the value of trending lines and e-mini trading, then I suppose I have done my job.
I like trading indicators that help me understand e-mini trading in real time. I can think of no better real time trading experience than watching price action move toward a known area of support/resistance (SAR) and evaluating what the possible outcomes may be when price collides with support lines or resistance lines.
Given a choice of just one e-mini trading indicator/chart pattern I would select, hands down, support and resistance. In my little world of trading, support and resistance (SAR) reign supreme.
Trend breakouts and breakout volume share two important factors (among a list of other important variables) in shaping the likelihood of a successful trend breakout or breakdown. For obvious reasons, volume in a specific direction is a key ingredient in a successful trade.
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