Probability game called “Trading”

Before entering into any business line a trader conducts a deep market analysis to get knowledge of the expectations of consumers. This analysis serves as a base for trading in physical market. But in stock market the trading is based on probabilities. These probabilities are the possible outcomes of the particular situation.

You win if you have predicted the right outcome and vice versa. But what a trader has to understand is that stock trading is based wholly and comprehensively on the mechanism of probability. It is up to trader how he balances his investment amongst the various possibilities to derive the maximum return.
If the two coins are tossed simultaneously then there are four possible outcomes. These can be both the heads and tails or one head and one tail. Now before predicting about the outcome what needs to be seen is the probability. If one bets one dollar on all outcomes then he spends $4 and suppose he wins 3 outcomes out of four then what he got is $6 ($2 for every win). This way he has earned $2 overall by balancing his portfolio.


This way trading in shares has different possibilities. It can be:
• Increase in Price
• Decrease in Price
• Stability in Price
The decision of an investor to long or short will be purely dependent upon these possibilities. The probabilities are determined based on
• Previous trends in stock price
• Strategic Announcements made by the company for the shareholders
• Demand supply mechanism
In day trading the stock position is squared up the same day which means that buying and selling occurs on the same day itself. So if the possibility of the stock is go above the opening price then the strategy is to buy it at the onset of day and sell it whenever it takes an upper shift. Again here the buying or selling decision will depend upon the possible movement in stock price.
On the other hand in swing trading positions are held for a period longer than single day. This fundamental trading is derived by the principle of earning the reasonable profits. The trader before entering into this long periodic trading, take a note of the future anticipations. And these anticipations are the result of probabilities. Taking an instance if a trader analyzes that in the past years whenever company has announced its bonus issue the stock prices went up. Then in the hope of such announcement on the basis of interim reports of company he buys the share as it is expected to bring visible benefits. Now the hope of announcement of bonus issue this time also is nothing but the probability as it can be or cannot be.
This way probability is the root of the tree of trading. The more the roots flourish in form of expected outcome the more fruits would be borne by the tree. Therefore trading is called Probability Game.