Thinking in Probabilities
One of the most important skills I have learned in markets is to think in probabilities and scenarios. Today, I will walk through a few methods we can use to assess the odds of the current market.
G’day Folks,
A line you will hear me repeat very often is that I cannot predict the future.
If you spend enough time in markets, you will have no doubt gone through the same journey that I have, where you seek out that one indicator, or that one dude who accurately tells you where the market is going next.
As we all know, no such indicator exists, but many investors go their whole career without working this out, and spend countless hours looking for it anyway.
Instead, my approach is to think in terms of probabilities and scenarios. Rather than pretending I can predict the future, I instead use data to inform which scenarios I think are most likely, and how that would impact my strategy.
Whilst I cannot predict the market, I can certainly prepare for it.
If the market goes higher, I have a plan. If it goes lower, I also have a plan. If it goes nowhere…which it does 40% of the time…I may be bored, but I have a plan for that too.
Today’s post is inspired by a new options chart I have rolled out, which came from a conversation we had with one of our Orange subscribers. It shows the probabilities that are priced into the options markets, for price closing above a certain strike price, at various expiration dates.
One of the great advantages of Bitcoin is that we have a wealth of transparent data available to us to make decisions based on. This data comes from a variety of market sectors such as derivatives, onchain, and spot markets.
I’m going to walk through a couple of the frameworks I use for thinking in probabilities. We will leverage data from the options, onchain, and technical realms, which more often than not, speak the same language.
When we end up with a confluence of levels priced into different sectors of the market, this helps build confidence that I am on the right side.
This process helps me make decisions in the market, and more importantly, to trust my judgement, even if it swings against me in the short term.
📈 Reminder: you can find the charts from our articles on the Checkonchain Charting Website, and a guide in our Charts Tutorial Video.
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