Not many people think that the theory developed for roulette and other similar gambling games may lead to strategies for managing funds in the market - but "operational theory" does just that. Operational theory is a theory that can link gambling and money management.
Operational theory is a theory that can be applied to high leverage or short-term trading, which is part of the reason many traders will try to use it in the foreign exchange market - because the foreign exchange market is highly leveraged and short-term trading.
To give you an idea of running theory, think about roulette. In one rotation, the ball has a chance of 1 or 2, or 1/2, and the ball will be black or red. So theoretically, there are still a quarter chance of two blacks or two consecutive reds, and as you continue, the chances get smaller and smaller.
Running theory believes that if the red selection is four times, the chance is much greater than 1/2 of the next time the ball will turn black. Since only 1/32 of the chances of the ball will turn red five times in a row, theoretically, if the ball has appeared four times in a row, then because of the rate law, this is the fifth rotation is easier to walk another color than the basic 1/2. .
Sports betting players sometimes use it to explain why there is always a "bad week" to balance things even after all the research on their picks.
The same example can be used to flip a coin. If I throw a coin five times in a row, then the probability of it landing on the sixth [theoretical] is 1/2, but if the coin is five times before that [1/32 chance], then the running theory is that every When flipping, the coin must be more and more likely to land.
Whenever you apply "operational theory," it involves two main conditions:
1. There is no statistical advantage in the occurrence of profits and losses
Theory must emphasize fund management under adverse conditions
In the foreign exchange market, the Martingale and Anti-Martingale trading methods take this algorithmic theory into account. The 鞅 method shows that the initial bet should be doubled each time a loss occurs, because after winning, it is better to return to the even number and then bet the original investment again. Don't use it to trade forex!
The rumor method is exactly the opposite. The winner doubles until the preset goal is reached, and then after reaching the goal, you stop immediately and withdraw your money before the end of the winning streak. Or, you will continue to increase your funds until you lose money.
These foreign exchange trading methods are directly related to trading theory and are the method of trading the market. Although many traders prefer mature systems that are not based on gambling theory, each has its advantages and disadvantages.
Orignal From: Gambling and day trading - operational theory
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