Here are my insights.
What is trading?
My definition is: trading is the act of estimating the probabilities of various potential scenarios under conditions of incomplete information and making optimal decisions.
Let's start the thought experiment from the simplest scenario:
If you go play poker, excluding the wild cards, there are a total of 52 cards. Assume that the shuffling process is completely fair, meaning that what card appears next is completely random.
In this case, you can calculate the probability of a specific card appearing in the next draw absolutely correctly.
For instance, if you have 2 cards in hand, there are 4 public cards on the table, and you have 46 unknown cards (52-4-2=46), then the probability that the next card is a specific card is one in 46.
In the above scenario, you have 100% complete information and can calculate the probability absolutely correctly. It can be said that you have complete information.
Although it is uncertain what the next card will be, with 46 possibilities, the probability can be correctly calculated.
Uncertainty is not risk, as long as one can correctly know the probabilities of various potential scenarios.
Then, let's change the premise.
Still playing poker. However, the total number of cards used for the game is unknown. It could be 52 cards, or it could be 80 cards.
Moreover, the distribution of suits and the distribution of card numbers are also unknown. A specific suit could make up 60% of the total number of cards, or it could be only 10%.
Moreover, the total number of cards and how many cards of a specific number or specific suit are also variable in each round.
Moreover, the determination of how the above parameters change is decided by a group of people through voting. In this group, the weight of votes varies, with those holding larger amounts of capital having higher voting weight.
And this group of people also invested money to bet on what card will appear next.
The above situation is similar to the actual financial market, where it is impossible to calculate probabilities accurately because you do not possess complete information.
Another important concept is that different market participants have different amounts of information, and the probabilities estimated by each person vary.
For example, one night, you are walking on the road in a wealthy area of New York. According to the statistics, the probability of encountering a robbery on this road late at night is one in a hundred thousand.
So, in your eyes, the probability of encountering a robbery is one in a hundred thousand.
But at this moment, behind the trash can 200 meters ahead, there is a Black man hiding with a gun. In the eyes of this Black man, the probability of you encountering a robbery is 100%.
One day, in the financial market, you bought a certain futures product. According to a large amount of statistical data, you believe that the probability of this trade being successful is 60%.
But at this moment, a large fund, for some reason, is about to issue a massive sell order in a few minutes. In the eyes of the trader from this large fund, the probability of the market falling is 100%.
The source of all risks present in trading is the incompleteness of information.
The so-called probability is always subjective.
To become a qualified trader, one must recognize that they do not possess complete information, and that others may have more complete information than themselves.
Based on this understanding, the optimal strategy is made, determining how much risk exposure to take, how to enter, and how to exit.
Just looking at what others say, it's hard to truly and deeply experience it. The best way is to play poker.