4. Two variables

Finally, in the third chart, you’ll see the probabilistic outcome of the interplay between two variables,

• accuracy (the probability of win or loss) and

• the win/loss ratio (the average payout of all wins and losses in the series).

The above has far-reaching implications for all traders, and the importance of learning to think in probabilities and having an edge cannot be emphasized enough. Welcome to the world of trading!

Takeaway:

Remember: it is mathematically impossible to make consistent profit in a random environment. As traders we have to ensure that

• our trading results are the result of a non-random process

• and it is a non-random process with a positive edge.

  
  That’s the only way to have a reasonable chance to succeed. Even so, results will vary, since randomness aka luck (which includes bad luck) is never zero.

Further study:

Futures, foreign currency and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.