Over the past two months or so, I have focused my analysis on empirical probabilities through discretization, rather than deploying the traditional approaches of fundamental and technical analysis. While the standard methodologies may be useful in presenting context, color and visual representations of market behavior, at best, they rely on derivative probability rather than conditional.
It’s a massive difference that leads to wildly discrepant outcomes. Under the derivative approach, the probability of success that you’re calculating is actually a function of already-known aggregated conditions — not of the present, uncertain moment. Similar to the statistical trick that casinos use to say that they offer the loosest slots, the probabilities are calculated based on the aggregate distribution.
