At the heart of trading is probability?

The core of trading is not the probability itself, but a decision-making and management system based on probabilistic thinking.
This sentence sounds a bit abstract, let me elaborate from my own perspective.

First, probability is the background, not the answer
The market is essentially an environment full of uncertainty, and there is no way to guarantee that a single transaction will be profitable, even the top performing traders cannot guarantee that they will make money by buying and selling will not sell away, so the objective fact is that the transaction itself has a certain probability.

But if you only stay on the word "probability", it is easy to fall into the misunderstanding, thinking that "anyway, rely on luck, just operate at will, don't believe in the words of stable profits, no one can do it". This is not accurate enough, and the real core is how we recognize and navigate this uncertainty. Trading is not a lottery, a bit like playing Texas Hold'em, where the probability of getting a good card is the same as that of amateur players, but the long-term winning rate of the former is much higher than that of the latter.

Second, the ability to transform probabilistic thinking into sustained profitability
This transformation is not easy, but the path is correct, and the following three aspects need to be achieved:

1) Pursuing positive expectations: This is the soul of probabilistic thinking. Your trading system must have a profitable advantage in long-term statistics, for example, a system may lose 7 out of 10 trades, but each loss is small; However, the three times of profit can bring greater returns, so it is still profitable to add up. So if you implement such a system for a long time, you are a winner in the market. Therefore, you have to build your own trading system seriously and objectively, through historical data backtesting, or simulated trading (small positions are also acceptable) to verify whether there is a statistical positive expected value.

2) Ensure sufficient sample: The advantage of probability requires a sufficient number of transactions to appear. A coin toss is luck, and if you flip it 10,000 times, the result will inevitably be close to theoretical probability. Trading must not negate a system because of several consecutive stops, nor can it be regarded as the holy grail because of a huge profit. You must give the system enough time and times for the law of probability to work, and I recommend at least more than 100 trades.

3) Strict adherence to risk management: This is the premise of everything. Even with a system with positive expectations, if a single risk gets out of control (e.g., a loss of 50% in a heavy position), you may be eliminated by the market before the probability advantage is realized. The fundamental purpose of position management and stop-loss discipline is to ensure that you can "survive" until the day when the probabilistic advantage appears. This cognition is very important, your expectation of each trade is not to make money but to make a small loss or no loss, if the result is like this, then don't worry about stopping the loss, but if the market gives a chance, it is actually "lucky", strive to make a big profit!

Third, probabilistic thinking is the ultimate test of human nature
The reason why probabilistic thinking is extremely difficult to practice is that it is completely contrary to human nature. Because human nature craves certainty, probabilistic thinking requires us to accept the uncertainty of a single outcome; Because human nature hates loss, probabilistic thinking requires us to regard losses as necessary "costs"; Because human nature prefers to seek patterns, probabilistic thinking requires us to admit that some losses are unjustified, but only normal "wear" of the system. Therefore, this kind of change in thinking is difficult, which is also the fundamental reason why many people cannot effectively execute and make stable profits even if they have a trading system, because they still lack control themselves.

Therefore, the core of trading is not probability, but the response to probability, which is to acknowledge the uncertainty of the market and make oneself a beneficiary of probability in the long-term repeated game through systematic methods (adhering to positive expectations, accumulating sufficient samples, and strictly adhering to risk control), and at the same time, through the "iron law of trading" to resist human weaknesses that are not conducive to probability games.

Whether you can remain calm in the uncertainty of probability and stick to the system in the face of setbacks brought by probability is even more important!