Lecture Notes: Trading with Statistics and Probabilities

Introduction

• Focus on simplifying trading execution using a single time frame.
• Emphasize the use of statistics and probabilities to eliminate subjectivity in trading decisions.
• Importance of data as a black and white tool in trading.

Subjective vs Objective Trading

• Different perspectives on trends across various time frames.
• Subjectivity in evaluating trends, fair value gaps, order blocks, and support levels.
• Use of data and statistics to remove subjectivity and provide clarity.

Statistical Approach

• Example of using statistical data: 68.7% probability of retracing to midnight open in New York based on past 954 days.
• Statistical data is irrefutable and provides a consistent approach across different market conditions.
• Probabilities are based on historical occurrences, not future predictions.

Trading Methodology

• Begin trading from 8:00 AM based on statistically-backed data.
• Decide trading direction based on statistical backing rather than market condition predictions.
• Emphasize on trading during range conditions rather than trends due to higher occurrence of ranging.

Real-World Application

• Demonstrates use of statistical probabilities to guide trading decisions.
• Example of using midnight snap statistics for retracement probabilities.
• Strategy to focus on data-backed lines for short and long trades.

Risk Management and Profit Targets

• Dollar cost averaging strategy for risk management.
• Use of statistical profit targets, such as 0.13% for high probability trades.
• Emphasizes on consistency rather than chasing large profits.

Statistical Consistency and Edge

• Importance of consistency in statistical direction and risk management.
• Building a successful model involves comparing in-sample and out-of-sample data.
• Statistical direction and risk management combined define a successful trading model.

Practical Trading Examples

• Weekly analysis of trading based on statistical probabilities.
• Use of opening hour prices and midnight snap for trade setups.
• Adaptation to news events using statistical data for guidance.

Summary

• Trading methodology focuses on removing subjective biases using statistical data.
• Emphasis on consistent, statistically-backed trading rather than predictive analysis.
• Approach encourages peace of mind on the charts by relying on irrefutable data.