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