The Holy Grail of successful trading and gambling

By Jelly Fish | cryptofun | 26 Feb 2020


"It's simple but not easy" is what they say about stock trading. Personally, I believe them, but it's not what I want to say at the moment. At the moment I want to give you the Holy Grail Principle of successful trading (and gambling, for that matter). Yes, exactly like that, right down below, openly and for free (excluding the tips I may receive for this note).

This Holy Grail Principle is called positive math expectation.

In essence, the formula is fairly simple (though doing the math is definitely not the strongest side of mine, so I might well be mistaken and you are free to correct me).

Let A be the probability of a win, and B be the probability of a loss (therefore A+B=1). Then let X be the (positive) amount of a win and Y be the (negative) amount of a loss (for simplicity let's suppose they're don't change during a given run). Then the math expectation will be AX+BY. To have it positive AX+BY must be greater than 0. If your math expectation is positive -- you will end up in a win overall, in the long run.

That's that simple. If you don't believe me, you can check the internets yourself (and I even encourage to do so).

What does it mean practically? Practically it means that to win in the long run you should try to rise your winning probability and amounts of wins while lowering amounts of losses. "Huh, we already know it for ages, Cap...", you might say.

The real trick is that you don't need to know the probability that much and to win that often as long as you cut your losses short and let the profits run up so that a single big win could cover a lot of small losses. Besides, you must have sufficient funds to bet the long run. In other words, you don't need to dyor fundamentals or read charts that much as long as you master stop-loss orders and capital management.

This theory successfully works for casinos (works against you, though). The casino guys are smart enough to move their sliders so that to maintain for themselves the positive math expectation (that is, the negative one for you) and wealthy enough to withstand a lot of losses (i.e. your wins).

Let's take my favorite dice game in my favorite Trustdice casino (I use it to mine TXT tokens using their own faucet). In the dice game at ultimate settings, you wager 1000 wei (ETH satoshi) with the 95% probability to win 36 wei and 5% probability to lose your 1000 wei. Therefore the expectation is (36x0.95) + (-1000x0.05) = -15.8 that is deeply negative. You win a lot, 95 times out of every 100, but in the long run you will lose everything. I tried that rolling the dice for hours (in auto-mode) and the outcome was always as sad as expected.

To beat a casino you must reverse the math expectation in your favor and have enough funds to wager in the long run. That's that simple, but probably not easy at all.

Here I cut my stream of words. I hope I said enough to draw more attention to math lessons.

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Jelly Fish
Jelly Fish

Cryptofreak


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