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Tackle Today: Push the edge, find the edge

February 20, 2020

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Tackle Today: Push the edge, find the edge (Photo by Mike Suarez C. on Unsplash)

≈ The essence of money management. ≈

The Law of Large Numbers states that the average of the results obtained from a large number of trials should be close to the expected value, becoming even closer as more trials are performed, i.e., as the sample size grows, the mean will get closer to the expected value of the whole population.

The classic approach to explain this probability theory is using the coin flipping example. You got a 50% chance of either get heads or tails. The more you toss the coin, the closer you get to the 50% expected value. The first toss might give you heads. The second one too. And the third. But as you keep trying, say 10,000 times, you will get 4,990 heads, and, therefore, 49.90%.

Long-term consistency is the key.

Now, replace the coin flipping with trading. You enter a position that has a 90% POP (0.10 Delta ≈ 10% Prob. ITM). You get the point: the more you trade, the more the mean of your sample size will get closer to the expected value of the whole population (90% POP). You might lose the first, the second and the third rounds. That doesn’t change the fact that the trade has a 90% POP. You can keep trading as long as you don’t lose your shirt during the first rounds.

That is the essence of money management.

If you are pushing the edge, eventually you find the edge.


Chart of the Day

How SARS Impacted Global Economies

Infographic: How SARS Impacted Global Economies | Statista

This chart shows the estimated one-year impact of SARS on real GDP in selected countries/territories.

(Source: Statista)


Video of the day

Free Solo

If you are pushing the edge, eventually you find the edge.


Rookie Corner

System Synergy VI

This week in the blog we are talking about part 2 of the system build. From the image above if you want to make it to the top of the pyramid you have to have a solid base underneath and as Qbert has taught us you need to be fleet of foot. This is also true in trading systems, you need a good base and you need to be able to adjust to get the maximum success from your system. That is where part 2 comes in, we need to decide what markets will be used for the system and what processes we need to put in place to make sure that we can execute the system in a manner that is consistent with successful principles.

Traders Lounge 11 PM EST

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Halftime Report 12:30 PM EST

The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day and fun in a way that only Matt and Tim can deliver.


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