【summary】
The true winning rate is not the winning rate that is observed by chance, but the ``true probability of winning'' inherent in the strategy or ability. When it comes to investing, trading, horse racing, sports, etc., short-term results alone do not reveal your true ability. By playing the game enough times, you will get closer to your true winning rate.
Conclusion
What is the true winning rate?
Original probability of winning in the long run
It means.
The actual winning rate will vary depending on luck.
Therefore,
- Won 8 out of 10 times *Win rate was 80%
However, this does not necessarily mean that the winning rate is 80%.
Difference between observed win rate and true win rate
For example, consider flipping a coin.
The true winning rate (probability of heads) of a coin is 50%.
However, after 10 pitches,
- Table: 8 times
- Back: 2 times
It may become.
The observed win rate in this case is 80%.
However, the true winning rate remains 50%.
The same thing happens with investing.
For example, an investor
- Traded 10 times and won 8 times
Let's say.
The winning rate is 80%.
but,
- The market environment was good.
- It was just a coincidence
Maybe.
More data is needed to know the true potential.
Sample size matters
As the number of trials increases, the observed win rate approaches the true win rate.
This is called the "law of large numbers."
For example, if you have a strategy with a true winning rate of 60%,
| Number of times | Discrepancies in observed winning rate |
|---|---|
| 10 times | Very large |
| 100 times | Somewhat small |
| 1,000 times | Quite small |
| 10,000 times | Close to true winning rate |
There is a tendency.
Image diagram
Assuming a strategy with a true winning rate of 60%,
真の勝率 = 60％This 60% is the theoretical line.
The actual winning rate will fluctuate around this area, getting closer as the number of attempts increases.
How to find the true winning rate
In reality, the true winning rate cannot be directly seen.
Therefore, we estimate it from past data.
The basics of calculation are
推定勝率 = 勝ち数 ÷ 総試行回数However, this is an estimate and not the true winning rate itself.
Illusion that investors fall into
I think it shows your ability when you win consecutive games.
If you win 5 or 10 games in a row,
"I have talent"
I tend to think that.
However, in the short term, luck plays a large role.
Abandon strategy if you lose consecutively
On the other hand, even a good strategy will result in consecutive losses in a short period of time.
Therefore, if you do not know the true winning rate, you will abandon a good strategy midway through.
True win rate and expected value
Winning percentage is not the only important thing in investing.
for example,
| Strategy | Winning rate | Average profit and average loss |
|---|---|---|
| A | 80% | Profit 1: Loss 5 |
| B | 40% | Profit 4: Loss 1 |
in the case of,
Expected value may be higher for B.
Therefore,
勝率 × 平均利益
－
負ける確率 × 平均損失
＝
期待値の目安You need to think about it.
Framework for investment beginners
結果
↓
観測勝率
↓
十分なデータ
↓
真の勝率推定
↓
期待値評価It is important to make decisions based on long-term data rather than short-term wins and losses.
summary
The true winning rate is the inherent probability of winning based on the strategy or ability.
There are three important points.
- Short-term winning rates vary greatly depending on luck
- The more attempts you make, the closer you will get to the true winning rate.
- When investing, it is important to look not only at the winning rate but also at the expected value.
For beginners in investing, it is important to develop the habit of evaluating your ability based on long-term data, rather than making judgments based on a few successes or failures.