Law of large number

Hey hey, what's up my friend!

Imagine…

You're flipping a coin to make an important decision.

(Should I have pizza or burgers?)

When you toss a coin, there’s a 50-50 chance it’ll come up heads or tails.

But if you toss the coin ten times.

Are you guaranteed to get 5 heads and 5 tails?

Of course not!

You could get 4 heads and 6 tails, 3 heads and 7 tails, etc.

So now the question is…

Why didn’t you get 5 heads and 5 tails?

Because you didn’t toss enough.

Let me explain...

After tossing a coin 10 times, you got 4 heads and 6 tails, a 40% hit rate.

Now, what if you toss the coin 100 times?

You’ll likely get around 45 heads and 55 tails—a 45% hit rate.

Finally…

What if you toss the coin 1000 times?

At this point, your neighbours think you've lost your marbles, but stick with me…

You’ll get something like 480 heads and 520 tails—a 48% hit rate.

See the pattern?

The more you toss, the closer you get to the 50% probability.

Now you’re probably thinking:

“What has this got to do with trading?”

Here’s the deal…

In the short run, your results are as random as my attempts to assemble IKEA furniture. But in the long run, it’ll align towards your system’s expectancy.

That’s because your edge needs time to emerge from the chaos, just like how it took me years to learn that my wife saying "do whatever you want" is actually a trap.

Cheers,

Rayner “hates-to-carry-coins” Teo

P.S. You need to be disciplined about your rules. But first, you must have a trading system that works.