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The Gambler's Fallacy


Has anybody applied The Gambler's Fallacy to trading?

Briefly what this says is "The gambler's fallacy is a logical fallacy involving the mistaken belief that past events will affect future events when dealing with random activities..." etc.

The idea is that the dice or roulette wheel does not have a memory. So if red came up 10 times in a row on the roulette table then the chance of it coming up red the next time is not affected by the previous results.

I am interested to know how this applies to trading.
Good question. At what point do you start paying attention? At what point do you start to sweat? At what point does your heart have palpitations?

This question will be different for each person (IMO) based primarily on their level of wealth and secondarily on their personality.
quote:
Originally posted by inventor

No I'm nobody special or famous just a day trader trying to make a living and I do wright quotes.

"May your day be enriched with profits" is a very kind sentiment.

What are your other favorite aphorisms?
One of my personal favorites is:

"Standing on the shoulders of giants"

in full it is:

"I can see so far because I am standing on the shoulders of giants."

I believe that it is attributed to Isaac Newton and he was giving credit to his colleagues and others that went before him, assisted him and taught him. In other words, he stated that he achieved what he did because he was building on top of what great people ahead of him had already built.

It does not, unfortunately, have anything to do with trading.
Well I have no problem with the amounts, what I have a problem with is Greed, Curiosity and sticking to the plan.

Is like going whale watching ones you see the whale jump out of the water do you turn around and go home? no you wont to stick around and see more and if you get excited and Careless you mite get Hurt.
so If the plan is to go find the whale see it jump and go home well that is exactly what you should do do.
quote:
Originally posted by elite trader

quote:
Originally posted by inventor

No I'm nobody special or famous just a day trader trying to make a living and I do wright quotes.

"May your day be enriched with profits" is a very kind sentiment.

What are your other favorite aphorisms?



I only post the ones I wright, here is another one of my fevorites

Quote “Do you want to share in my success or share my success?”
-Mike G
quote:
Originally posted by elite trader

Okay, here is another probability question:

Suppose you have 3 doors and behind one of those is a hidden treasure.

You pick door A and someone opens door B for you and reveals that there is no treasure behind door B. You are now given a chance to change your selection before the final door opening. Do you stick with your original choice (door A) or do you switch to door C?

What is your decision? And why did you decide that?


I did not see anybody answer this question.

The answer, as I see it is that you always change the option to the other door.

What is happening here is that more information is being introduced into the problem after your initial decision. This new information improves the probability that door C has the prize behind it.
quote:
Originally posted by inventor

I only post the ones I wright, here is another one of my fevorites

Quote “Do you want to share in my success or share my success?”

That is more of a question than a quote but I am being pedantic about it.


I do not understand the question though? Does first idea talk about sharing in your success from a vicarious point of view and the second from a financial point of view?
I don't know it can be either or and requires some thinking.


I wrote it and made it public, now the next time some one having a business discussion with a partner? well that some one can quote me now dose that make it a quote?
If someone repeats something original that you said the I would say YES, you have been quoted. However, I am not sure if a question itself is a quote. That might be a matter of semantics.
quote:
Originally posted by super trader

The answer, as I see it is that you always change the option to the other door.

I believe that is the correct answer for the correct reason!
UrbanSound, you and I are saying the same thing. Simply using price bars you cannot predict the next bar. The predictability of future bars is in the patterns. Such patterns include S/R, Fibs and such. It is the formation that gives predictive value because from that you are able to see what other traders are thinking and hoping for.