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Think Probabilities

The markets are all about uncertainty, and it becomes more and more challenging to be confident in forecasting trends. Traders don’t know for certain which instrument will rise and which one will fall.

Therefore, traders must always think in terms of probabilities. This doesn’t sound very sexy, but the reality is when you are dealing with uncertainty, there is always risk involved, and everyone’s perception of risk is different, which is why markets exist.

Traders often forget that risk is the reason behind our trade decisions. Looking at a chart our perception of the potential of a favourable move is based on our own rationality.

This is where probabilities come in. Probabilities should be based on logical and objective analysis to be of any use to the trader. When we face uncertainty, the only information to base our analysis on is past price behaviour.

The market consists of a huge amount of data to analyse, trying to make sense of it. Therefore, to strategize based on probabilities results in more intelligent trading decisions.

So, take time to make some sense out of all the market data, then plan for the worst possible outcome. If the result of the trade turns out to be positive, think of it as chance and high probability trading. Never personalise loses. This reduces disappointment and makes for a much more positive trading experience and a good dose of positivity is always welcome.

 

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