I legitimately have never seen anyone that truly loves math with all their heart, and will devote their life to studying the ins and outs of mathematics.

That said, to be a successful trader, you need to learn the basics of math and economics. That's the only way you'll be successful (that and a healthy dose of WhaleAlert.io and news articles from cointelegraph)

I myself am a lover of Technical analysis and economics, and I make sure I learn something new in both topics unfailingly everyday. I have followed this pattern of learning something new in both topics for about a year.

Sometime last week, I came across something revolutionary, and I wish to share that with you. I won't go in-depth into anything so as not to make the post boring, but I really want everyone reading this to take this seriously, especially if you're a trader.

It's called the law of large numbers, and anyone who studied college economics would be conversant with its ideologies.

The law of large numbers dealers predominantly with PROBABILITY.

So what is probability?

Simply put, probability is the statistical likelihood of an event happening at some point in the future.

The most common example of probability is the coin toss.

Assume we have a non rigged, standard coin that has two sides, which are heads and tails.

Now, the law of probability states that if we are to flip that coin 10 times, we are supposed to have an even distribution of heads and tails. That is to say, 5 heads and 5 tails.

But in practice, this isn't the case at all. In fact, for the purpose of this post, I actually flipped a coin 10 times to get an idea of what we are talking about.

In my results, I got 2 heads and 8 tails. And I closed my eyes throughout the process, so I wasn't tempted to rig the results.

This is a classic example of the "small sample space problem". It states that "the laws of probability cannot function optimally given a small sample space". And we can see that here.

If you have a minute, you could try to flip a coin 10 times and record your readings. Should you perform the experiment more than once, and plot a graph of your readings, your graph would have peaks that are larger than others. It would look something like a bitcoin graph.

But it was noted that should you perform the same experiment, but 50000 times, you would get much closer to a 50-50 division of heads and tails. And the higher you go, the closer this number gets to an even distribution.

This is the law of large numbers.

"Ok Mr Picasso of Pips" you say. "What the heck does this have to do with my trading?"

Simple.

Every trader must have what is known as a trading plan. This is simply a set of rules that tells you when to enter, as well as exit a trade. We use trading plans as a way to eliminate the emotional part of our trading, to become as mechanical as possible.

It is usually best that when we finish our preparation in technical analysis learning, we must create our trading plan based on certain factors, such as formation of certain candlestick patterns or the readings from certain oscillators or indicators.

Having put this plan together, it is integral we backtest this plan on a demo account. That is where the law of large numbers comes in.

Most traders back test a plan 2 times, and if it isn't profitable right off the bat, they scrap it and start to look for one that is profitable in its first two trades.

The law of large numbers suggests that for you to find the actual probability of that plan being profitable, you must test it more than 10 times to ascertain the true value of it's profitability probability.

The best way to do this is to actually trade normally with the plan, but using a demo account and not a live one.

This will prepare your mind for how the market works, but more importantly, it will show whether or not your trading plan is profitable.

But what if after testing the plan for 6 months, your readings say that it isn't profitable? What do you do then?

To counter act this, I have come up with a pretty witty solution. I call it the 50 trade set up.

Probability states that the likelihood of an event to occur is either zero or one. It doesn't factor in situation.

What that means is that even if you have a dart board with "buy" and "sell" printed boldly on it, and you blindfold yourself and throw a dart at this board, and you trade based on the result of that "test", you would come out net even. You would make as many profits as losses.

But with a trading plan, you could actually up the percentage of your winnings to 60 or 70% based on how many advantages you give yourself, such as being a momentum trader or break out trader.

So back to my hack. I suggest that traders testing out a strategy make 50 trades within the space of 1 week.

The number of trades you make in a day doesn't really matter. As long as you make 50 trades in a week, it's all good.

What you will notice is that your strategy would actually show mass profitability or lack thereof.

Because you have a fairly large sample space spread over a period that is considered as standard, you will be able to replicate the results of trading 100000 times over a year. Believe me, I've done the math.

Try it out and please give me your results.

Thanks for reading.