Probabilistic thinking: the edge and the sample

An edge is nothing more than an indication that the probability of one thing happening is greater than its opposite. It does not guarantee the outcome of a single trade, nor is it meant to. Here begins the most important mental shift in a trader’s life: moving from thinking about the single trade to thinking about probabilities over a large sample.

The edge and the large sample

Consider the casino: it does not know the outcome of any single hand, and it may lose several rounds in a row to a lucky player. Yet it comes out a winner at the end of every year, because the small advantage is in its favour, and because it plays a large enough number of rounds for that advantage to show. It does not bet on the round, but on the statistical law across thousands of rounds.