The Wiley Trading Guide by Wiley

Author:Wiley
Language: eng
Format: mobi
Publisher: Wiley
Published: 2011-04-06T04:00:00+00:00

‘Edge’ thinking

Edge thinking means to think in terms of probabilities, in terms of the win rate and profit ratio of the edge that you execute in the market. The problem is that our minds are hardwired not to think in terms of probabilities but in terms of whole numbers.

Evolutionary psychologists argue that the human mind is wired to think in terms of raw frequencies rather than base rates and probabilities. Asking about the probability of a single event is routine in today’s world, where we are inundated with statistical data ranging from batting averages to weather predictions. But our ancient ancestors had access to little data other than their own observations, which were accumulating counts of natural frequencies, such as ‘we had a good hunt three out of the last five times we went to the north plains’. Evolutionary theorists also argue that the human mind is wired to count the frequency of whole objects, actions and events rather than parts. They argue that our ancestors did not break the world into half-bananas or quarter-tigers and that parsing the world into whole objects remains more natural for humans today.1

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