Statistical thinking is essential to developing an ability to trade. Outcomes are never certain, but if you adopt a process that maximizes the chances of a positive outcome, you may be able to trade successfully. Maximising the chances of a positive outcome doesnot mean that you will be successful, it merely ensures that the odds of success is maximum.
In a book about mathematical puzzles that I read recently, called “How Long is a Piece of String”, the authors Rob Eastaway and Jeremy Wyndham explored the chances of finding one’s perfect partner. Selecting the perfect mate is a bit like trading because it involves serial decision making. One is not given all of one’s options at the same time, they merely bump along one after another . One isn’t really sure what or who will come next.
The authors contend that in this uncertain environment, the best way to maximize one’s chances of finding that special person is to first estimate the no of potential partners one is going to meet. One must then date the first 37% without committing but benchmarking the most suitable one. Once the 37% mark is reached, the time to settle down has come, and one must then select the first person one meets who is better than the benchmark. Naturally if one does not meet anyone better then the benchmark, then one just settles down with the last one. The authors call this the 37% rule. There are obviously many “unrealistic assumptions” in this, the most obvious one being that potential partners will always accept one’s overtures. But crass as it may seem, it does maximize the chances of one ending up with the most suitable partner. The point is that following this method will not ensure that you end up with your dream person, but it sure will increase the chances that you do so, more than a hit or miss approach.
Ergo, a statistical approach to trading will increase your chances of success over a hit or miss approach.
