BC TRADING
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THE TRADER'S EDGE: THINKING IN PROBABILITIES

Casinos make consistent profits day after day and year after year, doing something random

At the same time, most traders believe that the outcome of the market's behavior is not random,yet can't produce consistent profits

Thread 🧵

 What casino owners ,professional traders know is that probable outcomes can also produce consistent results if you " Have an edge" and trade on a large enough sample size.

The best traders treat trading like a numbers game.

1. To illustrate, let's look at the game of blackjack-
In blackjack, the casinos have approximately a 4.5-percent edge over the player.

This means that casinos will make profit over a large enough sample size, even after several winning streaks and big profits of many players.
At the end of the day, week, month, or year, the casino always ends up with approximately 4.5 percent of the total amount wagered.

That 4.5 percent might not sound like a lot, but let's put it in perspective.
Suppose a total of $100 million dollars is wagered collectively at all of a casino's blackjack tables over the course of a year. The casino will net $4.5 million.

What casino owners and pro traders understand about the nature of probabilities is that each individual hand played
is statistically independent of every other hand.

This means that each individual hand is a unique event, where the outcome is random.

If you focus on each hand individually, there will be a random, unpredictable distribution between winning and losing hands.
But on a collective basis, just the opposite is true.

If a large enough number of hands is played, patterns will emerge that produce a consistent, predictable, and statistically reliable outcome.
HOW TO THINK IN PROBABILITIES-

1. You have to believe in the uncertainty and unpredictability of each individual trade.

2. You have to believe that the outcome over a series of hands played is relatively certain and predictable.
Why, because there are many variable on which the result of each trade will depend ,

In trading, the known variables (from each individual trader's perspective) are the results of their market analysis.
Market analysis finds behavior patterns in the collective actions of everyone participating in a market.

In trading, the unknown variables are all other traders who have the potential to come into the market to put on or take off a trade.
The known variable is the result of the analytical tools we use, support and resistance, trend lines, moving averages .

Suppose you are putting on a trade based on a breakout and you are buying because you think that the buying will continue to be there in stock.
But the outcome of trade is not in your hand , is it?

It’s the unknown variables or the other traders whose collective behavior will determine the outcome of that trade.

They will be acting on their beliefs about what is a breakout?
At any given moment, some percentage of other traders will contribute to an outcome favorable to our edge, and the participation of some percentage of traders will negate our edge.

So there's no way of knowing how other traders will react on a given condition ,
so the results of a single trade are random and should not be predicted.

Since all trades have an uncertain outcome, then like gambling, each trade has to be statistically independent of the next trade, the last trade, or any trades in the future.
Also, there must also be a random distribution between wins and losses in any given set of trades, even though the odds of success for each individual trade may be in the traders favor.

Casino operators have learned that all they have to do is keep the odds in their favor
and have a large enough sample size of events so that their edges have ample opportunity to work.

So ,keep putting up the trade if you have a statistical edge ,and you will win over a large enough sample size of the trades.

Thanks for reading till here.

More from Trader knight

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Like humans , stocks too have different nature and if you are trading every stock the same way then this thread may be for you.

A thread on Nature of stocks and how it can help you to improve your trading results.


First start with what is the nature of stocks ?

I broadly categorize stocks in two categories-

1. The momentum stocks-

These are the stocks where most of the moves are swift in nature, or we can say that the pullbacks in a trend are smaller.

2. The AKBC stocks-

These are the stocks where most of the trending moves comes with deep pullbacks.


Examples-


So the purpose of categorizing these stocks, is that we Trade those stocks/instruments which are more suited to our style.

Say if you are a mean reversion player and you are trading in the momentum stocks category then you are more bound to lose over large number of trades.
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How to use Moving averages like a Pro.👇

https://t.co/7VbuGovmee
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A thread on Trend-lines


// What are trend-lines?

Trend-lines are support and resistance lines which are formed by connecting Important swing points.

The beauty of using them is that We can use them when stock is not Respecting the Horizontal S&R zones, they can indicate us when the trend may change.

// Things To consider while Making trendlines?

• A trendline formed by using 3 Major-Swing points is a potential trendline, But we will also use 2 points to form a trendline, will discuss how, as you read further.

• Trendline can be formed by two ways-

1. Wicks-

In this method we only connect the wicks to make a trendline, this is a precise way of making a trendline.


// Why only connect the wicks?

There are two type of levels - Precise and Less precise (Which we call zones).

So what we are doing is by only connecting the wicks we are making a precise level where we can take trades, either Mean reversion or Breakout trades.

Examples-
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Trader knight
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It's time for a mega-thread (Updated).

This contains some of the best threads and articles on various topics related to trading, that I have posted till now.

Enjoy!😊

A thread on closing basis Stop


A thread on


Position


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Trailing Stop loss.

The most underrated yet most important tool in trading.
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More from Trading

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A thread on SCALING IN - OUT METHOD -


What is scaling in - out?

1. Scaling in is adding on to the positions when they move in our favor (Pyramiding).

2. Scaling - out is exiting the portion of the position when the trade moves in our favor.

I have explained about pyramiding in previous tweets.

// Why use scaling out instead of exiting all position at once ?

When you are using ALL - out method where you exit positions at once, mostly you use wider Trail SL as you want to capture big moves and exit all when trail sl hits.

The problem with this method is that either you make too big or many times your medium size winners turns out to become Scratch trades.

So, when we use the scaling out method, we are trying to capture most of our medium size trades , so that they do not turn into scratch trades.

// How to use scaling out method -

Say we have to got a signal to enter in a trade, and we have to buy 1200 qty according to our Position sizing.

So, we have to divide this 1200 qty into parts, how much? It depends on you.

We can divide into 3 parts, each part 400 qty.
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Aditya Todmal
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@AdityaTodmal
A THREAD:

BEST OPTIONS STRATEGY FOR CONSISTENT INCOME -

OPTIONS WHEEL STRATEGY

Everything to know about this strategy I'm posting in this thread.

(1/12)


Step 1: Stock Selection

1. For this strategy you're going to have to choose some stocks that you think will be doing well in the future/long term.

2. Stock must be in an uptrend.

3. Stock options should be liquid enough to trade in.

4. List of stocks attached

(2/12)


Step 2: Which option to sell?

1. Sell put at a support according to charts.

2. Sell put at a strike far away from the spot where you think the probability of the stock falling will be very very low.

3. Sell put at a price where you're willing to buy the stock at.

(3/12)


Step 3: What to do when in profit/loss?

1. If in profit you can just roll up the puts thereby increasing the ROI or shift to other stocks to make more profit.

2. If in loss take delivery of the shares equivalent to the lot size in cash market.

(4/12)

Step 4: What to do after taking the delivery?

1. Sell calls to lower your cost price of the stock. For eg, you took delivery of Reliance at 1900, sell 2100 CE which is about 10% away.

2. Keep doing this till your CE expires ITM and then give delivery of your stock away

(5/12)
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Full Technical Analysis in Single Thread🧵

This whole course is worth 40-50K-

1- Candle sticks and how to use

2- Advanced price action

3- The dow theory

4- Moving
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JayneshKasliwal
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@JayneshKasliwal
How to Avoid Big Losses In trading ?

1. Avoid Stocks Below 200 ema
2. Sell Stocks in Stage 4 Down Trend
3. Dont Trade Stocks that are moving in Circuits
4. Avoid News based Trading

A thread With examples🔖

Retweet to Educate Your Trading Friends !
1/n

A Study Shows that 90% of the winning Stocks stay above 200 ema before a big Advancing Phase

1. Simply Not Holding or Buying Stocks below 200 ema Saves a lot of time and Money.
2. You can looses opportunity Cost if you buy stocks below 200 ema.
3. TimeFrame: Daily 200 ema

2/n


B. Sell Stocks in Stage 4 Down Trend

1. Stocks Exhibiting this are in complete Bear Grip
2. The 30 week ema acts as reference for stage analysis
3. These Stocks can be short sold on pullback to 30wema
4. Happens after Topping Phase
5. TimeFrame : Weekly , 30 Week Ema

3/n


C. Dont Trade Stocks that are moving in Circuits

1. Mostly these stocks are Speculatve and Operator Driven.
2. You never know what is the top of the trend and may get Stuck with Huge Losses

Example : TTML , Alok , Ruchi etc
This is Pyramid Structure and news driven also
4/n


D. Avoid News based Trading
1. Whenever a postive News comes in Market People Jump in Buying the Stocks without thinking .
2. Most of the the times the news is factored in or gets factored after heavy buying
3. Your Money may get Stuck

Example : PnbBousing , AdaniPower
5/n
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Learn about the STEEL SECTOR in this thread

The demand for steel is generally only 1.2 times the GDP & there is no significant growth in our GDP but still the sector has rallied relentlessly, lets try & understand

Do ‘re-tweet’ & help us educate more investors (1/22)
#Investing

The metal sector is broadly divided into 2,
-Ferrous is a category of metal that has Iron in it, Steel as an example
-Non-Ferrous is a metal, which does not have Iron content, Aluminum, copper, lead, nickel, Zinc etc.
This thread focuses on Ferrous & hence Steel (2/22)

To start, lets understand with how steel is made (its important).
Iron ore is mined, it is then first converted to Iron & Iron is then converted to Steel. There are 3 processes of making steel
-Blast Furnace
-Scrap Metal
-DRIP/Sponge
We will discuss all three (3/22)
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What qualifies for an extended move?

30-40% move in just 5-6 days is one example of extended move

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Post that the plight of the


Example 2: Booking profits when the stock is extended from 10WMA

10WMA =


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