The Role of Chance in Trading

I love to read books written by efficient market theorists whenever I need a laugh. The works are usually written by an academic with no practical trading experience; these writers confuse the role of chance on a trade-by-trade basis with the edge an accomplished trader creates over a large sample size. From that error, a whole host of errors follow. Let’s state this upfront: on a trade-by-trade basis, I believe the market is random - given that is driven by human buying and selling. As an example, take my in-out trade yesterday in the S&P minis (see my video) . When the market failed to cover at least 50% of the gap in the first 60 minutes, the probability was we’d see a trend day closing on its highs. But this is a probability based on a large sample size. Yesterday, the market could just have easily sold off some time after breaking up - it did not have to trend up and did not have to close on its highs. I was lucky that it did. Lucky? Given that the market on a trade-by-trade basis is random, whenever a trade works out as my analysis suggests it will, I consider it lucky. And because I don’t want the result of any one trade to be skewed towards luck, I practise risk and trade management.

The full article is on :
http://tradingsuccess.com/blog/barrometrics-views-the-role-of-chance-in-trading-987.html