Markets are unpredictable but outcomes are predictable- Tom Sosnoff.
A deeply profound observation. So it is impossible to predict Market direction in any one or a series of Trades despite everything that TA's may tell you
A deeply profound observation. So it is impossible to predict Market direction in any one or a series of Trades despite everything that TA's may tell you
But if you have a backtested statistically validated system, you can predict with a great deal of certainty that say 80% of your Trades will be profitable. It doesn't mean that your PnL will be positive- you can still lose with a 80% success Rate
What it means is that to be successful you need to build context around a system where you have a high success rate to have a winning System. The Insurance and Gaming Industries are prime examples of this
Insurance companies use statistically validated models where they work out the odds of any event happening and arriving at a Price for insuring them. They have their share of Black Swan Events like hurricanes, floods and other natural disasters but they continue to thrive
The context they put around it is that they Price Risk properly, they hedge away part of it by reinsurance, they diversify it around several types of insurance and they restrict the size of their overall Risk based on the Capital they have available
This is exactly what we need to do as Traders. Build a system which starts with a high Predictable Outcome and then work around it to ensure Positive Expectancy and avoidance of Risk of Ruin
