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2006issue C031-2

Sit out, size and expectancy as one procedure

Trading and poker are mapped as the same decision stack. Sit out, size, leverage-control and an expected-value-filter belong in one procedure, not as afterthoughts to an entry idea.

  • Trading and poker share one decision stack: discipline, capital control, risk versus reward, timing, patience, and the choice not to act.
  • Capital control is two linked decisions: how much equity is placed at risk on one trade, and how much leverage-control is used to press an edge.
  • A trade with less than a 50 percent chance of working can still be taken when the expected-value-filter judges the payoff worth the risk.
  • Tilt changes the operator, not the price. The procedure is to act on probabilities, sit out when the rules say so, then execute when they say to act.
Entries in this reading3 entries
Leverage control22 readingsCurrent trackExpected value40 readingsTrading psychology process58 readings

The same decision stack

Trading and poker are mapped as the same decision stack. The pairing covers discipline, capital control, risk versus reward, timing, loose activity, bluffing, emotion, patience, concealment, and reading counterparties.

Discipline and patience include knowing when not to act, then executing when the rules say to act.

Sit out, then act

Abstention is the rule-based choice not to place a trade or play a hand. It sits in the same stack as the choice to act.

Emotional state is treated as changing the operator's reaction, not the price or the cards. Tilt is that emotional reaction: it changes how an operator responds without changing those facts. The procedure is to act on probabilities rather than on tilt.

Equity at risk and leverage-control

Capital control is specified as two linked decisions: how much equity is placed at risk on one trade, and how much leverage is applied to press an edge. Leverage-control is a bound on extra capital committed beyond the cash stake so a loss stays limited before and during the trade.

Size is increased only after an edge is established. A new approach is not begun at full scale. An edge is a repeatable advantage that is compared with the payoff offered before size is increased.

A low hit rate can still clear the filter

A trade with less than a 50 percent chance of working can still be taken when the expected payoff is judged worth the risk. That judgment is an expected-value-filter: a pre-entry test of whether the possible gain is large enough to justify the chance of being wrong.

Extra ways to complete or hedge a position are counted as additional outs that raise the chance of a workable result.

Probe-size and tape-reading

A small order can be used as a probe-size, an information probe about buying or selling interest, analogous to a small bet used to learn about a hidden hand.

Watching how a name prints a buyer or a seller is tape-reading, the trading counterpart of watching an opponent's betting pattern.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
9 of 22 in the Expected value track
20061-4 pp.Next on Expected valueA testable intraday procedure from setup to stand-downThe stated reason for a shorter hold was more consistent income by replacing multi-week dry spells with more frequent opportunities.
All readings on this track · 22 readings
  1. 1995A pre-trade checklist that bounds loss before the order
  2. 1998Ledger audit of exits, payoff, and overlap
  3. 1998A return-to-loss filter for drawdown-aware evaluation
  4. 2000Pair historical volatility with return-to-loss filters
  5. 2001Credit-spread construction that can fail before any order is sent
  6. 2002Evaluating mechanical systems in a traders market
  7. 2002Profitability as a bound implied by RWL and commission
  8. 2004A day-trading breakeven matrix for size and win rate
  9. 2006Sit out, size and expectancy as one procedure
  10. 2006A testable intraday procedure from setup to stand-down
  11. 2007A planned liquidity offer at the inflection point
  12. 2011A style-neutral expectancy filter for system evaluation
  13. 2011Separate buying power from posted risk capital
  14. 2012Design before you trade: testing mechanical systems
  15. 2014Ideal trader hindsight as a pretrade filter
  16. 2014When expectancy and drawdown limits disagree
  17. 2015Signal, confirm, and invalidate before the trade
  18. 2015Price the win, stall, and loss before a stock entry
  19. 2016Construct expectancy by bounding losses and winner size
  20. 2017Estimate expectancy before you accept the trade
  21. 2017Size ladder tests for drawdown caps and expected value
  22. 2017Evaluate a high-yield correlation break as one locked procedure
By fieldDecision process76 readingsBy year200687 readings
All 40 readings tagged Expected value
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