Entries by Peter Brandt

Understanding Trading Outcomes

Reviewing trades offers the opportunity to unpack the impact of random probability upon a sequence of trading events. An extremely simplified view of probability theory
relative to trading goes something like this:

A prolonged sequence of futures (or FX, equities, cryptos – pick your poison) trades with a fixed $1000 profit target and a fixed risk of $1000 (normalized for underlying trends) should produce profits in 50% of the trades. A net loss would occur over time due to trading fees.
A prolonged sequence of futures trades with a fixed $2000 profit