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Comparing trading to a coin toss in this manner is pure bunk! My trading is not about a simple 2 outcome toss. If that were the case I could get a monkey throwing poop on a chart, and just trade where it lands So, in your example, no I would not take that bet. But if you tell me out of the previous 10 tosses 7 were tails and 3 were heads, and the last 3 tosses where heads, then YES, I would bet 3k on the next toss coming out tails. That would be more comparable to proper trading.
Ok so we established its a losing strategy for you.
The story continue:
You reply to the fellow on your left "No the odds are not good for me. No deal". He says "Well I have nothing to do I'll stay here if you change your mind."
After few minutes comes another guy from your right. He also stops and watches the coin toss. He approaches you and asks if you would like to bet on the toss. You ask him what are the odds he will give you. He says if its head you give him 1k and if its tail he will give you 4K.
Questions:
1. Will you bet with the guy on your right?
2. What will be the outcome for you if you bet simultaneously with both? (On each toss).
3. What is better of the two? (1 or 2)
Can you tell me if in option 2 you can lose all your money?
Can you tell me what will be the outcome of each toss in option 3? If tail ? If head?
After that I'll give you a true trading example.
Very good. So we can make a rule. If strategies are loosly correlated or not correlated or even better, like here (correlation =-1), have negative correlation on the outcomes, then adding even a losing strategy can improve your position!!
Lets look into another example:
you have two strategies:
1. NP=40K DD=6K
2. NP=10K DD=1k
Which is better? If you can prove it I'll be very impressed.
Wouldnt you want to know about the previous 10 to that? Maybe they were 9 heads and 1 tail!?
Writing to you from the wonderful province of Ontario, Canada. Home to the world's biggest natural negative ion generator, the Niagara Falls, and to those that dare to know how to go over it in a barrel. SALUTE!