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FREEGAME Friday: Your next 5 moves

Updated: Aug 15, 2024
Published: Aug 5, 2024
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Understanding and implementing probabilistic thinking in trading is a vital skill for any trader or investor.


This concept can significantly enhance your decision-making process and overall success in the market. Here's a breakdown of the core ideas and strategies discussed in the video:

The importance of probabilistic thinking

  • Psychological game: Trading is highly psychological. While analysis and research are important, the mindset and ability to make decisions under pressure are crucial.
  • Mark Douglas insight: Referencing "Trading in the Zone" by Mark Douglas, it's emphasized that the best traders aren't always the best analysts and vice versa. The ability to make calculated decisions is what sets successful traders apart.

Making decisions based on probabilities

  • Quality decisions: A high-quality decision is not necessarily determined by its outcome. You might make a well-informed decision and still face losses due to market unpredictability.
  • Accumulation of factors: Build your case for a decision based on various market factors such as market mechanics, key levels, Fibonacci retracement, RSI divergences, and more.
  • Example: Even with a 75% probability of being correct, you will still be wrong 2,500 times out of 10,000 trades. Understanding and accepting this helps maintain a balanced approach.

Strategy and risk management

  • Data collection: Collecting data around your strategy is essential. In the crypto market, backtesting can be challenging, but you can still build confidence by studying historical patterns.
  • Risk to reward ratio: Building a strategy around probabilistic thinking involves understanding the risk to reward structure. A good risk to reward ratio allows you to be incorrect more times and still be profitable.


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Optimizing probability and reducing risk

  • Limit variables: Limit variables that can cause you to be incorrect. Stick to buying in a trending market and avoid shorting to reduce complexity.
  • Quality bets: Identify what a high-quality bet looks like for you and only take those trades. Be selective and patient, waiting for the right technical setups and market conditions.
  • Bet what you can afford to lose: Never over-leverage or risk more than you can afford to lose. This helps maintain a healthy psychological state.

Mastering your trade and mindset

  • Narrow focus: Focus on specific assets and scenarios where you have a strong conviction. This allows for better decision-making and increases the likelihood of success.
  • Stick to rules: Adhere strictly to your risk to reward, technical framework, and other trading rules. Consistency in following these rules is key to long-term success.
  • Quality over quantity: It's more profitable to take fewer, higher-quality trades than to take numerous low-quality trades. Patience and selectiveness pay off.


The right mindset

  • Quality of decisions: The quality of a decision is not determined by its outcome. Even good decisions can lead to unexpected results.
  • Consistent strategy: Avoid constantly changing your strategy based on recent outcomes. Stick to a well-thought-out plan and adjust only when necessary.
  • Preparedness: Be prepared to make the next decision unfazed by the outcome of the last one. This resilience is crucial for long-term success.


Practical example: trading injective

  • Strategic moves: Outline your next five moves, considering possible outcomes and adjustments. For example, having a plan for re-entry if the initial trade doesn't work out.
  • Conviction levels: Identify key levels of conviction and stick to them. Use stop losses to protect your capital and be ready to reposition if needed.
  • Win-loss analysis: Understand that a few losses do not determine the overall quality of your strategy. Consistency in applying your strategy will lead to long-term profitability.


By adopting these principles of probabilistic thinking and strategic planning, you can enhance your trading effectiveness and achieve better results. Stay disciplined, focus on quality trades, and always be prepared for the next move.

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