CANNAINVESTOR Magazine December / January 2016 - Page 119

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A more intuitive approach is by dialing it back to where the contestant chooses door#1. The contestant knows that there is a 100% chance that there is a goat behind one of the other two doors. The contestant also knows that because there are three doors that she has a 1/3 probability of winning the car and therefore there is a 2/3 probability that the car is behind one of the other two doors. The host revealing the goat is just noise and is no different than offering the contestant to trade their one door for the other two doors. Switching doors to double the probability of winning once there are only two doors left is counter intuitive because of the perception, by many, that a door has been removed from the game leaving only two doors in play along with free will to select between them. For many, share prices are also counter intuitive because demand falls as price increases for most goods and services (negative correlation) yet for shares demand and share price are often positively correlated.

A person tossed a coin and it landed on heads 10 times in succession - what are the odds that it would land on heads an 11th time? The odds are astronomical to flip a coin landing on heads 11 times in succession at (½)11 or 99.9% that it will not succeed. But that was not the question that was asked. The questioned asked is what is the probability of a coin landing on heads after the tenth coin toss. The answer is 50% because each independent coin toss has a 50% chance to land on heads. The further into the future the forecast the lower the probability. Technical Analysis is no different – the shorter into the future the forecast the higher the probability of reasonable accuracy. It is for this reason that there are many articles dispelling the myth that day trading has a greater degree of risk because decisions are being made in “real time” and held over short time horizons.

The prepared Retail Investor uses Technical Analysis and other techniques to determine the probable direction of a share price. There are many sites that do all the work for you with respect to Technical Analysis. These sites are invaluable as they are also a good “second set of eyes” for those who do their own probability calculations.