How Much Math is Involved in Daytrading

[TroyMaster 10]

Hey guys,

 

Im new to this topic and trying to figure out how important math is in daytrading.

can someone of you tell me how nessesary it is to be awesome in math?

As I can read on the internet a lot is about disciplin, menthal strength and having a plan for every single detail.

 

But HOW IMPORTANT IS MATH?

Can any noob from highschool with no good mathskill but tons of passion be successfull in daytrading?

 

Cheers

Troy

[Tams 20]

  TroyMaster said:

Hey guys,

 

Im new to this topic and trying to figure out how important math is in daytrading.

can someone of you tell me how nessesary it is to be awesome in math?

As I can read on the internet a lot is about disciplin, menthal strength and having a plan for every single detail.

 

But HOW IMPORTANT IS MATH?

Can any noob from highschool with no good mathskill but tons of passion be successfull in daytrading?

 

Cheers

Troy

 

the only requirement for profitability is --- don't argue with the market.

[cplilqw 10]

little to no math at all. I find the psychological part about yourself is the most difficult to realize and overcome.

[electroniclocal 10]

Trading is Math. The whole process has to stack up. It's win rate, average trade, stop loss average loss. These numbers need to be consistent and need to stack up for anyone to make money out of day trading.

 

There are some people who believe that you can make your money on a small percentage of your trades - outliers. I don't thinks so. If I have to sit through 7 losers to find 3 winners and on those 4 make up the losses on the other 7 AND still make a profit, I'm not there.

 

Yes, Math is important by it's simple and if you can balance a cheque (check) book you can do the Math for trading.

[UrmaBlume 10]

  TroyMaster said:

Hey guys,Im new to this topic and trying to figure out how important math is in daytrading.can someone of you tell me how nessesary it is to be awesome in math?

As I can read on the internet a lot is about disciplin, menthal strength and having a plan for every single detail.

But HOW IMPORTANT IS MATH?

Can any noob from highschool with no good mathskill but tons of passion be successfull in daytrading?CheersTroy

 

You mentioned in another post that you are a professional poker player.

 

If you are a successful professional poker player you will already know how to calculate pot odds, implied odds, +/- EV (expectation) and basic odds and probabilities.

 

If you can do that then it is probably all of the math ability you will need for day trading.

 

 

UB

[james_gsx 16]

What exactly do you want to do? If you just want to stare at a screen and play find a shape then none really at all except for basic probability. Depending on how much more complicated you make it then you will need to know more math. For what 95% of the people I see here do, all you really need are basic skills.

 

However there are many people with very strong math skills who will likely take your money everyday. Just an FYI. The best traders seem to have a strong intuition for the market, and some are able to utilize math to create better/more efficient systems.

[Kiwi 16]

I am going to take what James said and take it a step further.

 

By way of background I have a number of degrees which required varying mathematical skills and was one of those who preferred calculus to other maths disciplines at school because it was easier to get 100% in calculus.

 

So here it is:

 

You Need No Maths beyond the most basic arithmetic to succeed in trading. It helps to be quick to add and subtract if you have a minimum win/loss ratio in mind and want to check before entry. But nothing more. And someone could have set up that test for you in excel ... I think the Sam Seiden worksheet I posted over at FF did that as one of its trade quality criteria.

 

Probability and stats are not needed. They can help if you want to design systems and get clever with money management but you don't need them even for that - you can just read around and use simple heuristics.

 

You can pursue clever option strategies and find ways to benefit from maths but you don't need it. I suspect that most good traders get aways with some basic rules like "risk no more than 2% ...." but could hire someone with good maths if they ever needed to take it further.

 

This has been one of the greatest disappointments for me in trading - a bloody tragedy really.

 

 

The key to trading is to find an edge or set of edges that gives you a profit and have the mindset required to be able to execute the trades that come your way.

[emg 12]

  TroyMaster said:

Hey guys,

 

Im new to this topic and trying to figure out how important math is in daytrading.

can someone of you tell me how nessesary it is to be awesome in math?

As I can read on the internet a lot is about disciplin, menthal strength and having a plan for every single detail.

 

But HOW IMPORTANT IS MATH?

Can any noob from highschool with no good mathskill but tons of passion be successfull in daytrading?

 

Cheers

Troy

 

Math is very very important because we are dealing with numbers and poetry. Most of the SUCCESSFUL fund managers have master or doctor degrees in math or IT

[BigAl_LBL 10]

"How much math is needed" - How long is a piece of string?

 

I would largely agree with Kiwi above but it is possible to find strategies that utilise as much mathematics as you like and the arithmatic in those strategies can be as complex as you want. Alternatively you can get away with strategies that use no more than basic addition, subtraction and the occasional percentage calculation, In all cases it will be the execution of the strategy that will be the hard part. Discipline trumps maths for trading but mathematics may dominate in portfolio management

 

Cheers,

Alistair

[james_gsx 16]

  emg said:

Math is very very important because we are dealing with numbers and poetry. Most of the SUCCESSFUL fund managers have master or doctor degrees in math or IT

 

Most of those guys also have groups of very intelligent people and a huge technological advantage.

 

But if the OP ever wanted to get into stuff like this, he may want to brush up on his math

 

Trading and Market Microstructure authors/titles recent submissions

 

Essentially, if the OP wants to learn math then he should, if he doesn't, well then don't.

[steve46 12]

I thought I would post this. I think its an interesting question and its an area where I can help out without compromising my job

 

I agree with those who suggest that you don't need heavy math skills. Not saying that you don't benefit from knowing math. I am an engineer with a degree in math. It helps. BUT you can make money if you simply learn to observe, to put the puzzle pieces together, and learn to act intelligently (manage risk, etc)....

 

In the chart I attached you have what I and my colleagues call a ping-pong trade. At the end of regular trading hours, price moved to test down to an area where inventory was parked. Then it bounced up to test the other extreme. IF you learn to observe intelligently, you can see what other participants are doing. The testing of previous swing highs and lows is called "shaking the tree"...its an old game. Market tests the extremes and if they find resting orders, they "go with" the momentum that generates. If not, price often retraces and/or resumes its primary trend. No math involved, just common sense and observation.

 

In my opinion, there is always a way for the intelligent focused observer to make money in the markets.

 

Good luck

Edited November 11, 2010 by steve46

[steve46 12]

and here's a follow-up to that original chart

 

Here you can see that price came back down to re-test the value area low at 1207.50

 

In fact price stayed there long enough that a trader had lots of time to decide whether to get on board or to "pass" on that entry. If you notice, I put in horizontal lines that essentially define my boundary during that time period. What that does is tell me that during that time, I am looking to get a favorable entry (as close to the value area low as possible) so that I can control my risk.

 

Generally speaking a professional will want to buy at a "wholesale" price (like the value area low or below) and sell to the public at "retail" (value area high at 1216 or better) and vice versa.

 

As you can see, if you can recognize opportunity, you really don't need a lot of math.

Edited November 11, 2010 by steve46

[brownsfan019 17]

Interesting question about the need for math skills.

 

I think you'll see both sides of the pendulum if you read about traders and managers - some will be crunching so many numbers that it could make your head swell and some may use very basic math functions. And then everything in between.

 

Do you need a high degree of math intellect to be a trader? No.

 

Is it going to hurt if you are a PhD in Math? I doubt it.

 

I will say this though - I think you should have a love of numbers to do this job. You will be looking at numbers all day, even if not doing math functions directly. I've always loved the markets, numbers, compounding, etc. but for my day-to-day trading actual math functions are primarily done by the computer at this point.

[james_gsx 16]

  brownsfan019 said:

 

I will say this though - I think you should have a love of numbers to do this job. You will be looking at numbers all day, even if not doing math functions directly. I've always loved the markets, numbers, compounding, etc. but for my day-to-day trading actual math functions are primarily done by the computer at this point.

 

I agree. The time when you will use any real difficult math is if you are building a unique system that requires the math. Otherwise, functions such as moving averages, oscillators, or whatever are already done for you (you could pull the code easily, assuming you even want to go that route).

 

And to be honest, if you are using a system that utilizes a ton of math, you are likely severely lagging on the technology front - comparatively speaking of course.

[BlowFish 10]

Enough to fully understand and calculate risk (and hence position sizing). That is basic + - * /. A real beginners understanding of probabilities would do no harm too. This is simply to understand that trading is about consistently applying an 'edge' rather than individual trades.

 

Not much, not much at all.

[SIUYA 11]

Too much Maths can blind you to the realities of the market....LTCM, Var proponents.

An interest and a basic understanding in numbers is all thats really required.

There is more than one way to skin a cat.

 

As for the fund managers who use a lot of math...... do they or is that just part of their marketing strategy????? (food for thought)

[Nick1984 10]

Being good at quick mental arithmetic is always good.

In terms of position sizing you can program that into an Excel spreadsheet to know how to manage you money as you go along.

 

Quick mental arithmetic is I think a prerequisite if you are going to be effectively trading options however that being said you should never have a good spreadsheet too far away from you.

 

If you are doing a delta neutral strategy you can't do that all in your head!

[xioxxio 10]

Whatever maths you think you will need program it or use software. It will free up your time to focus on other variables.

 

If you are applying for a job as a trader, you may get tested on your numerical solving abilities.

[Do Or Die 10]

I agree... programming skills are more important than maths unless you are applying for trading jobs.

 

Programming itself requires to have great organization skills and ability to create processes, manage variables.

[Dutchie 10]

Trading is all about probabilities. The more odds you have on your side the lesser the chance you will loose money (note: I didn't say the bigger the chance you're making a profit since it's all about risk management especially for beginner traders!

 

Beginners should mainly focus on limiting losses instead of making profits!

 

There are some trading basics that you need to take into consideration, but as for maths, If you know how to distinguish a trend from a correctional move and know how to draw trend lines you're half way to success

 

A great site is BabyPips.com

 

Cheers,

 

Peter a.k.a. Dutchie