##### Ads

related to: what does it mean to have 'odds' in the stock market

Feb 21, 2017 ·

**Odds favor long**terms investors (53% chance of making a profit), investors with long term horizon should consider investing in stock markets. Average investor should look to invest in the Index using a low-cost Index fund. Direct equity investors should understand that the odds are stacked against them.- Understanding The Coin Toss
- Long-Term Results
- How Profitable Traders Make Money
- The Bottom Line

Let's assume that at a given moment in time, a stock could just as easily move up as it could move down (even in a range, stocks move up and down). Thus, our probability of making a profit on a (short or long) position is 50%, which is the same as a coin flip. Although most investors would not likely initiate random short-term trades, we

**will**start with this scenario. If we**have**an equal probability of making a quick profit,**does**a run of profits or losses signal what future outcomes**will**be? No! Not on random trades. Each result still has a 50% probability, no matter what outcomes came prior. The same**is**true of a coin toss—if it lands heads ten consecutive times, the probability of it landing on tails on the next toss is still 50%. A consecutive streak or a run can happen in random 50/50 events. A run refers to a number of identical outcomes that occur in a row. Here**is**a table displaying the probabilities of such a run; in other words, the**odds**of flipping a given number of heads...**The**above example gave a short-term trade example based on a 50% chance of being right or wrong. But**does**this apply**to the**long term? Very much so.**The**reason is that even though a trader may only take long-term positions, they will be doing fewer trades. Thus,**it**will take longer**to**attain data from enough trades**to**see if simple luck is involved or if**it**was skill. A short-term trader may make 30 trades a week and show a profit every month for two years. Has this trader overcome**the odds**with real skill?**It**would seem so, as**the odds**of having a run of 24 profitable months are extremely rare unless**the odds have**shifted more**in the**trader's favor somehow.**What**about a long-term investor who has made three trades over**the**last two years that**have**been profitable? Is this trader exhibiting skill? Not necessarily. Currently, this trader has a run of three going, and that is not difficult**to**accomplish even from totally random results.**The**lesson here is that skill is not just reflec...Of course, people do make money in the markets, and it's not just because they have had a good run. How do we get the odds in our favor? The profitable results come from two concepts. The first is based on what was discussed above—being profitable in all time frames, or at least winning more in certain periods than is lost in others. The second concept is the fact that trends exist in the markets, and this no longer makes the markets a 50/50 gamble as in our coin toss example. Stock prices tend to run in a certain direction over periods of time, and they have done this repeatedly over market history. For those of you who understand statistics, this proves that runs (trends) in stocks occur. Thus we end up with a probability curve that is not normal (remember that bell curveyour teachers always talked about) but is skewed and commonly referred to as a curve with a fat tail (see the chart below). This means that traders can be profitable on a consistent basis if they use trends, even...

Why is

**the**50% probability example useful?**The**reason is that**the**lessons are still valid. A trader should not increase position size or take on more risk (relative**to**position size) because of a string of wins, which should not be assumed**to**occur as a result of skill.**It**also means that a trader should not decrease position sizeafter having a long, profitable run. New traders can take solacein**the**fact that their researched trading system may not be faulty, but rather**the**method is experiencing a random run of bad results (or**it**may still need some refining).**It**also should put pressure on those who**have**been profitable**to**monitor their strategies continually, so they remain profitable over time. This approach can also aid investors when they are analyzing mutual funds or hedge funds. Trading results are often published that show spectacular returns; knowing a little more about statistics can help us gauge whether those returns are likely**to**continue or if**the**returns just happene...Jul 26, 2010 · Going Long on a

**Stock**, is the strategy that most people are familiar with, and simply**means**that you are Buying a**Stock**with the view that the**stock**will rise in value & eventually sold at a higher price. Stocks**have**a 1:1 leverage, so for every dollar the share price rises so**does**each of your shares eg. 100 x ABC shares @ $20 rise to $21 = $1 ...London

**Market**Betting**Odds**, LSE - The London**Stock**Exchange is the UK's version of Wall Street. Though it is much smaller than the New York financial**market**, UK gamblers**have**made betting on the LSE big business, thanks to a culture of gambling countries in the United Kingdom.People also ask

What are the odds of winning a stock trade?

What's the 5 minute odds on the stock market?

What does it mean to bet on the stock market?

How is the futures market used to predict the stock market?

Warren Buffett has done a pretty good job making money from stocks. Here are 4 things he looks at when buying a business: Invest in a company you fully understand, make sure they

**have**an honest management team in place with a track record of succe...Sep 14, 2020 · Thomas Phelps, author of the book 100 to 1

**in the Stock****Market**has provided valuable lessons to better understand the power of compounding. A 100-bagger is a**stock**that returns 100 times your ...Apr 13, 2020 · Unlike the

**stock****market**, futures markets rarely close. Futures contracts trade based on the values of the**stock****market**benchmark indexes they represent. S&P 500 futures trade based on the value of ...Jun 12, 2021 · 5.

**Margin debt**is skyrocketing. Perhaps the most terrifying fact of all is the current level of**margin debt.**Margin is the debt that brokerage customers take on to buy equities. Consider it a way ...Mar 11, 2020 · According to Dimensional, in the years following a 10% correction or worse, the

**stock****market**has still been up on average (and significantly so) in the one, three, and five years to follow. Fama ...

##### Ads

related to: what does it mean to have 'odds' in the stock market