Math can frame subject or situations but doesn't lend itself well to predictions IMHO. Math can describe a bucket very accurately or maybe the probable size, shape and colour of a bucket but won't tell you what the bucket will do next.
No-one knows for certain where the market is heading. I used to think that there were a group of people who did and if only I could find out who they were and how they did it I would be made. What I do know is that they dont exist and once I realised that my trading changed quite dramatically.
well, math is the key to making profits as far as insurance companies, bookmakers, casino operators etc. are concerned
law of averages/probability blah
as traders, we can never say for certain that a particular trade is gonna go in a certain direction, but if we can develop a strategy or system where the odds are in our favor (like the casino operators) and our winning trades more than compensate our loozers, then we're in the money
Maths are necessary for development of all indicators, I also used to use an indicator called Tracker [INDEXIA] which I believe included laws of probability in forecasting [or was it lagging] markets.
I think we trade with some form of probability inbuilt into our decisions for example:-
At any given time running a slow stochastic/19 on a 30minute
chart at or near the top of its range the probability of a fall in the chart is greater than a further rise "on average" , if this is not the case then why use the indicator......although we do not carry out a formal analysis using probability theory we accept [on most trades] what we see .......as do the professionals...
Throughout history we have looked at ways of recording what has happened from the amount of rain that has fallen or the number of crops that have yielded well. When we have a good crop we have recorded how that was achieved. Did we we use this fertilizer or that.. selective breading was developed in this way by taking the best cattle for a particular purpose to achieve (with higher probability) the best heard.
Surely we are doing the same whether we use FA or TA we are looking for what we consider the best parts of history to repeat itself so that it will give us the edge we are all looking for. And Based on our interpretation of of these statistics then we make a trading decision sometimes right sometimes wrong.
Trading by equations is not easy because we all see the same information differently and then there is a multitude of other factors to consider before we trade. Does it fit our R/R profile or money management rules and our ability to implement them always dictates the success or failure of every setup.
When i put this thread on the other night id had a few to drink, looking at some of the replies i admit that the thread looks rubbish. Iwould like to try and explain what i mean, but i wont. Thanks for the advice, PeeDee.
Bonsai, i read a statement in a book " follow the herd ", and i think it was Sir Issac Newton who said " I can precisley predict the movement of the stars and planets, but i can not predict the madness of people." He lost money on the markets, i think i understand what you are saying. PeeDee.
But not in the way most people think. Given that the market can and does do anything, maths has little or no relevance except in pricing options, derivatives or spreads etc. Maths applied to pure price is just adding another layer of personal beliefs. (Fibs etc)
According to Tharp "setups and entry each are about 10% of the equation, exits are about 30%, and position sizing is about 60%"
It is in position sizing that maths is critical to success. as they say is it all about how much or how many contract to use per trade. If you think about it, if trading is at best a 50/50 game (i know it is a negative game actually given commissions, tax etc) applying a constant number of contracts to each trade will at best lead to making no money over time. The secret is adding to the size of the bet when proved correct. So I start with a single unit bet, given I have no guarentee that the bet will be right (I am hopeful 'cause of analysis etc). If it proves wrong them my loss is a single unit. On the other hand if price action proves my annalysis correct I quickly increase bet size to capitalise on run. Hopefully the leverage correct bets more than outway my regular small losing bets.
That is were maths is critical to success- POSITION SIZING.
History suggests that they do. But as Keynes also said there are only two ccertainties in life- death and taxes. Knowing that I am going to die has little bearing on what I am doing to-day or even next week.
PS What is your definition of the long term. A day -trader might think 8 hours is long term, a position trader might think a month is a long term, whereas a historian might think 100 years is a long term.
All comes back to your belief systems. ie don't really understand your question in relation to your original query-is maths important to trading.