| If I want to be good as an investor, then I | | | | landing. |
| need to be good at arithmetic to analyze the | | | | |
| odds of an investment. Also, I need to be | | | | If I invest $100 in each trade, then I can |
| able to read and write. There is where | | | | make at least 100 trades. That is the number |
| scholastic education plays an important role. | | | | of times that the share prices will go up in |
| Scholastic education teaches me how to read, | | | | a 100 trades is near 33. This is like |
| write and do arithmetic. It is one of the | | | | throwing a coin a hundred times and the |
| three vital educations as highlighted by the | | | | number of times that I will get a head in a |
| Rich Dad's series by Robert Kiyosaki. The | | | | 100 throws is near to 50. |
| other two vital educations are professional | | | | |
| education and financial education. | | | | A professional trader understands the fact |
| | | | that probability is only true if there are a |
| How does arithmetic play a part in | | | | sufficient large number of trades. Thus, he |
| investment? To answer this question, I need | | | | only risks a small amount of this capital in |
| to explain a little on the probability using | | | | each trade. |
| the example of a coin. | | | | |
| | | | Another way to apply this probability is to |
| What happen when I throw a coin and let it | | | | limit the loss of each trade to $100. That |
| lands onto the table? It is obvious that the | | | | is, I can invest all my capital in the share |
| coin is either going to show head or tail. | | | | of a single company. If the share price goes |
| What if I throw 2 times, what are the chances | | | | down and my loss hit $100, I will sell off my |
| of the coin showing head? | | | | position and exit the stock market. Of course |
| | | | if the share price drops too suddenly, I will |
| I cannot really be sure what are the chances. | | | | end up losing much more money than I am |
| I may get 2 heads in a row. I may get 1 head | | | | willing to loss. Thus, this approach is not |
| and 1 tail. I may get 2 tails. | | | | that advisable. |
| | | | |
| What if I throw a 100 times? How many times | | | | In addition, the professional trader makes |
| is the coin showing head? I will find that | | | | use of technical analysis to increase the |
| the number will be somewhere near 50. In | | | | odds of winning. He analyses the chart for |
| other words, I will find that there is a 50 | | | | indication of to buy and sell. Also, he uses |
| percent chance of getting a head if the | | | | a few other techniques to increase his chance |
| number of throws is large enough. The | | | | of winning. All these are included as part of |
| probability of getting a head is the chances | | | | his investment plan. |
| of the coin showing head out of a large | | | | |
| number of throws. That is the probability of | | | | The above description is based on my |
| getting a head is 0.5. | | | | understanding by reading a book. I have |
| | | | gathered from the Rich Dad series by Robert |
| Similarly, if I have thrown a six-sided dice, | | | | Kiyosaki that investment plan is different |
| the probability of getting a six in a 100 | | | | for each individual. If I read more books, I |
| throws is about 1/6. But I can do something | | | | will definitely find more approaches and |
| to increase my odds of getting a six. I can | | | | methods for trading. Different professional |
| use a modified six-sided dice that has a | | | | traders have different investment plans and |
| higher probability of showing a six compared | | | | thus they will do things differently. |
| to a normal six-sided dice. In this way, the | | | | |
| probability of getting a six is increased. | | | | * DISCLAIMER * |
| | | | |
| And this is what a professional investor does | | | | The author only provides the material and |
| to make money from an investment. He | | | | information as a layperson's views about an |
| increases the probability of winning by | | | | important subject. The materials and |
| identifying and managing the risks involved. | | | | information are from sources believed to be |
| He does not invest for the sake of | | | | reliable and from his own personal |
| investment. He has a plan for investment that | | | | experience, but he neither implies nor |
| includes risk management. Yes, investment is | | | | intends any guarantee of accuracy. |
| a plan based on what I have understood from | | | | |
| the Rich Dad's series by Robert Kiyosaki. | | | | All the materials, information and procedure |
| | | | in this book are only the author's personal |
| A good example will be looking at how a | | | | opinion. You must consult your own |
| professional trader makes use of probability | | | | professional advisor and other reputable |
| to his advantage. | | | | sources on any matter that concerns you or |
| | | | others. |
| In a stock market, the price of a share can | | | | |
| go up, go down or remain the same. That is | | | | The author, publishers and distributors are |
| the probability of the share price going up | | | | not competent and do not profess to give |
| is 1/3. Remember, the probability only holds | | | | legal, accounting, medical or any other type |
| if there is a sufficient large amount of | | | | of professional advice. The reader must |
| trades. Like in the case of throwing a coin, | | | | always seek those services from competent |
| the probability of 0.5 is true only if there | | | | professionals who can review your own |
| is a large number of throws. | | | | particular circumstances. |
| | | | |
| Let imagine that I have an initial capital of | | | | The author, publisher and distributors |
| $10,000 to invest in shares. If I invest | | | | particularly disclaim any liability, loss, or |
| $10,000 in a single trade, what is the | | | | risk taken by individuals who directly or |
| probability of the share price going up? | | | | indirectly act on the information contained |
| There is no way to predict or tell. This is | | | | herein. All readers must accept full |
| like throwing a coin once and try to guess | | | | responsibility for their use of this |
| whether it will show head or tail upon | | | | material. |