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J
I don't presume to answer for whoever wrote the message you are referring
to but you can only compute a probability based on the number of possible
outcomes such as the two sides of a coin, or in the case of markets, from
some historical perspective. As to the time period that, of course, would
have a significant impact on whether the probability had any practical
value. The longer the better would be a general rule. My assumption,
which I may have misconstrued, is that there is a 60% probability that
the trade will reach a target equal to the risk (if it is a 1:1 reward ratio)
before it retraces to the stop point.
As to forecasting probabilities the general formula would be something like
this.
If the risk reward ratio is 1:1 then that means that for every $1 risk you
take you would expect to receive a $1 return. (Risk, in this context, is
not how much you invest in the trade but how much money you actually lose if
your stop loss is hit.) Now if the probability of that happening is 60%
then 6 of every 10 trades would win $1 and 4 of every ten would lose $1.
Thus you would net $2 or 20% from which you would pay yourself, your
broker, your expenses, and your government. The formula would be as
follows:
probability of success (p)
expected gain (G)
probability of loss (p)
expected risk (L)
(p*G) - (p*L) = return on investment
in the case above:
(.6*1) - (.4*1) = .2
thus you clear 20 cents on every dollar you risk.
As for support and resistance discussions I plead special ignorance.
b
<BLOCKQUOTE
style="PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px">
----- Original Message -----
<DIV
style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black">From:
<A title=jprroth@xxxxxxxxxxx
href="mailto:jprroth@xxxxxxxxxxx";>jeff97_98_1998
To: <A title=realtraders@xxxxxxxxxxxxxxx
href="mailto:realtraders@xxxxxxxxxxxxxxx";>realtraders@xxxxxxxxxxxxxxx
Sent: Sunday, July 07, 2002 10:03
Subject: [RT] Re: Bear Market ?
Not Joking,How does one compute a 60% probability
of a market levelbeing achieved? And in what time period? And
withwhat amount of drawdown?Why not a 100% probability, given
enough time?What is used to forecast probability?I flunked
statistics and probability in school,so this subject is quite confusing to
me.Also about support and resistance.How many support levels
has the Nasdaq violatedsince 5000? So where was the support?If
you breach 10 support levels, and bounce off theeleventh, does that prove
support levels actuallyare
tradeable?thanks,jeff--- In
realtraders@xxxx, "ira" <irat@xxxx> wrote:> Some interesting
things have occurred on the charts with Wednesday and Fridays
numbers. There is nothing in price that has voided the down trend in
the indexes and the rally prices are due for a retracement, but I would be
careful about going short into a retracement of this rally. There
appears to be a 60% probability that the Nasdaq composite could get to
1500, the 100 to 1170, the S&P to 1050 and the DOW to 10,000.
There are some strong resistance points prior to reaching these numbers,
but they are there. So, if you are going to short the first thing on
Monday, it may pay to have a safety net somewhere. Good trading,
Ira.To
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