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Understanding trading outcomes through the lens of probability theory

Reviewing trades offers the opportunity to unpack the impact of random probability upon a sequence of trading events. An extremely simplified view of probability theory relative to trading goes something like this: A prolonged sequence of futures (or FX, equities, cryptos – pick your poison) trades with a fixed $1000 profit target and a fixed risk of $1000 (normalized for underlying trends) should produce profits in 50% of the trades. A net loss would occur over time due to trading…