Probability plays: What are the odds of getting a winning trade?
A common misconception is that trading is akin to gambling, with no more science behind it than a coin toss. This couldn’t be further from the truth.
Sure, a coin toss is 50/50 (I.e heads or tails) but ultimately your chance of winning a toss is reduced each time you flip a coin. This isn’t the case with trading. Experienced traders apply fundamental analysis, understand the market and take educated positions when trading.
Understanding which “way” the market will move (bull or bear) is key to becoming a great trader. Unlike gambling, your chances of making winning traders are increased the more you trade, provided you are implementing a trading strategy derived from experience.
Tipping the scales in your favour
Each trade, each position, presents new potential; after the results of trade, creating a new position means you start from scratch with the same potential of hitting a winning trade as the last. A trader can increase the likelihood of a winning trade through several ways ranging from understanding the market to analyzing data.
A trader should not increase their position size or take more risk if they enter a profitable run. A good trader will monitor their strategies constantly to remain profitable over time. This allows you to tip the scales in your favour.
Fred Razak, chief trading strategist at CMTrading, shares valuable insights: “When you’re buying a security or asset, you’ll find you have one of two options; it’s a 50/50 chance you will make money. You’re either buying or selling.
“If you can take a 50% chance and increase that by even 1%, you’ve already increased your likelihood of potentially making money in the markets. That’s the key to probability plays. Putting things in your favour, even by a little, will increase your chances of a winning trade.”
Watch the video below: