First of all, ask yourself: how often you are sure of the results of your future transaction? If you continuously use a proven strategy and it is not your first day in the market, it is possible that the answer will be positive.
By the way, this is not bad, because the confidence itself is very useful in life and in business. It means that our inner world, our thoughts and emotions are in a stable balance, and we are ready to make responsible decisions. But there can’t be one hundred percent confidence, especially in the financial markets.
Confidence and probability
You will agree that a major bank may collapse or a military conflict may begin at any time. Or the UN might announce sanctions against a state. All these reasons can destroy all your predictions and lead to the most unpleasant consequences.
In everyday life, we usually talk about the probability of an event, assuming that it may occur or not. And if you do not think about it when working in the market, you are making a big mistake. Because trading is nothing but working with possibilities.
Two is better than one
Let’s suppose that a trader is using a set of technical indicators Stochastic and RSI. Both indicators are oscillators. Their main task is to give a trader signals when the market is overbought or oversold.
But why not to trust the signal of one indicator? The fact is that the trader is trying to increase the probability of a successful outcome of the transaction, so he waits for the parallel signals of two algorithms. This is a vivid example of working with expectations.
Setting the criteria
However, you should not reduce the situation to an absurdity and work with hundreds of analysis systems simultaneously. The score system of transaction evaluation, which is very popular with American traders, will help you increase the probability of a successful transaction.
In order to do that, it is necessary to identify at least 2-3 criteria (the technical analysis pros can set up to 7-9) of the trading idea evaluation.
Counting the scores
The values of indicators, analytical sources (for example, the signals for Expert-users on Olymp Trade platform), formations, candlestick patterns, the presence of a trend can be these criteria. In that case, it is desirable to choose all criteria from different subtypes of analysis.
Each criterion votes “for” or “against” the transaction. The more votes in favor, the more points you get. And the more points you get, the higher the probability of a successful transaction.
Let’s imagine that we have chosen three different indicators as criteria. One of them gives signals to go long. And the others confirm the indications of the first one. Therefore, the rating system can give us 3 points, which is the maximum number. Such transaction must be carried out.
However, traders often do not wait for maximum confirmation and work with a lower score. There is nothing criminal about it, but a trader must set a threshold minimum for himself: for example, you need 3 points out of 5, or 2 out of 3 to open a transaction.
Keep in mind that based on statistics on the use of this technique, the threshold minimum can be adjusted to a greater or lesser extent.
Pal up with the probabilities and do not rely on luck. You are the key to the unique trading system that will help you succeed!