Managing Risk Using Probabilities 3

In part 2 of this series, we discussed the probability of a coin flip and how the odds that you land on heads "x" number of times in a row significantly decreases each time the coin is flipped. Therefore, it is important to understand the difference between "the probability the chart goes up or down" and "the probability that you (the trader) find yourself in a winning trade."
The brings me to my next point of gathering your data. There is a difference between gathering data to calculate the probability an asset will rise or fall versus gathering data on a specific trade set-up and determining whether or not it will win or lose. Backtesting and forward testing are both excellent methods to calculate probabilities. In my honest opionion, backtest at least 100 trades in order to best calculate probability. Ask yourself if you are okay with losing more than 3 times in a row. If your set up loses more than 4 times in a row, it is very likely your odds of being in a losing trade are worse.
Please take the time to think and meditate on this matter. If there are no questions concerning this, I may begin to go into details of my own personal trading set ups on the next article.
Be blessed!
Handy