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How to Calculate Your Probability of Profit in Your Head
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ticker lesson
Breakdown
0:00lesson
Trading with probabilities
- Trading depends on probabilities
- Choose trades with high probability of profit
- Probability calculations can be done mentally
- Formulas can be simplified for mental math
2:28lesson
Calculating probabilities for defined risk trades
- Probability is number of losing outcomes divided by total outcomes
- Example: 3 winning outcomes, 7 losing outcomes = 70%
- Verticals and iron condors use this method
- Max risk is difference between strikes minus credit received
4:46lesson
Applying probability to sports betting
- Odds of 5 to 1 mean risking $1 to win $5
- Total outcomes = 6 (1 loss, 5 win)
- Probability of underdog winning = 16.6%
- Probability of favorite winning = 83.3%
7:06lesson
Understanding probability in trading and betting
- Total probability of all outcomes = 100%
- Use platform for precise probability calculations
- Mental math can approximate theoretical probabilities
- Avoid risking more than comfortable
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