Chapter 7 · Probability thinking
What changes when you say “BTC will rise” versus “BTC has a 60% chance of rising”?
- Skills to practice
- Probabilistic decisions
- Read first
- Chapter 6 · Complete trade
- 3D simulation
- None
Market scene
Lin's simulated journal says, “BTC will definitely rise tomorrow.” Zhe writes, “Comparing the same closing time, I estimate a 60% chance tomorrow closes higher; if the news is denied, reassess.” The next day falls.
Lin deletes his record. Zhe keeps his words and marks “did not happen.” One failure cannot directly prove the original judgment lacked evidence.
Without real money, repeat one computer assumption: each rise has exactly 60% chance, independent of others. Seed 1 produces 61 rises in 100 trials. Why not exactly 60?
Your decision
How will you leave inspectable judgments when similar news appears again?
Observe the result
| Wording | What can be checked later | What remains missing |
|---|---|---|
| Definitely up | One direction | Allowed failures and evidence |
| 60% with deadline | Comparable occurrence frequency | Sufficient comparable records |
| 80% after a fall | Judgment changed | Why new information supports it |
| Keep records and inspect | Evidence stability | Sparse samples remain uncertain |
One profit cannot prove reliability, and one loss cannot replace evidence inspection.
The mechanism
This teaching experiment sets occurrence probability to 60%, independence, and 100 observations. It is chosen, not estimated from BTC. Expected occurrences are 60, but an individual generated group may show 61 or another count.
Specify events, windows, and sources before probabilities/evidence. Comparing all rising days with days after particular news requires filters fixed before results. Winner selection inflates confidence.
- Define what counts as occurrence
- Record probabilities and evidence
- Record results at the original deadline
- Accumulate comparable predictions
- Compare forecasts with observed frequencies
- Update only with new evidence
With independent 60% occurrence, next failure remains 40%. Five specified consecutive failures have probability 0.4 to the fifth power, approximately 1.024%. This differs from a losing streak anywhere in a long record; Chapter 10 separates them.
What it is called
Real markets
Chapter 2 shows news entering quotes gradually. Save then-visible news and timestamps; later additions cannot pose as advance information.
Chapter 17 separates funding. One favorable rate cannot guarantee the holding period; consider persistence, decline, and reversal separately.
Chapter 3 explains candle intervals. Align venues, timezones, and endpoints before comparing forecasts, or “tomorrow rises” may describe different events.
Hands-on
Assume independent outcomes. A win earns the reward-to-risk amount in R; a loss costs 1R. The same cost is deducted on each trade. R is the stop-loss amount planned in advance.
Seed1; changing payoffs or costs leaves this outcome sequence unchanged. A sample win rate does not promise the next outcome, and the same sample cannot validate the probability you entered.
Course versionV1-docs; sourcelab:probability；Chapter 7 / TRD-PROB-001
Records parameters and results at the click only; does not mean the experiment passed.View snapshot to save
- Set assumed wins to 60%, retaining other settings. Record seed 1 counts, then generate another group.
- Define an observation's event, deadline, source, and probability without real orders. Write unknown when unsupported.
- Specify information that would update it; record outcomes using the original definition.
- Produce a forecast log with judgment, evidence, result, updates, and reasons. Keep failures; one sample does not replace aggregate checks.
Change one variable
Three depths
- FoundationWhat differs between saying BTC will rise and saying it has a 60% chance of rising?Chapter 7
- AdvancedHow do conditional probability and Bayesian updates revise judgments with new evidence?Advanced A · Probability and statistics
- InstitutionalHow do you test a team's probability calibration?Institutional
Write events/times, then probabilities/evidence. Predictions may fail; definitions cannot change afterwards. One outcome is one record.
Conditional probabilities require conditions. Bayesian updates need likelihoods under different scenarios, not arbitrary upgrades for impressive news. Retain probabilities before/after and evidence; see Advanced A.
Continue the project: specify priors, likelihoods, and update sensitivity.
Teams retain timestamped predictions and compare frequencies by probability bins and horizons with counts. Overlapping predictions and multiple judgments on one event are not independent; deleting extreme failures cannot improve true accuracy.
Continue the project: check team calibration and effective samples.
Questions to take away
Chapter self-test
60 is the assumed average, not a quota. Seed 1 produces 61.
No. It allowed failure; inspect definitions, evidence, and comparable forecasts.
Not under independence. Market dependence needs evidence; “my turn” is no mechanism.
It changes the question. Settle at the original deadline and register a new prediction.
One idea to take away
Markets offer probabilities, not certain rises. A professional judgment includes a probability and a statement of what happens if it is wrong.
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What differs between saying BTC will rise and saying it has a 60% chance of rising?
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