What Are My Odds?

The noise about fake winning strategies from television, newspapers, and books will make you deaf.  The only way to be certain of a winning system is to subject it to valid  hypothesis testing (i.e. avoid curve fitting, data mining, and selection bias).  

A common misconception for testing systems is to assume the odds of calling the market correctly is 50/50.  

50/50 is flat out wrong.

It's been said many times, "the market is a like casino rigged in your favor".  If you randomly bought the S&P index on one day and sell it back the next day, you can expect to be in the black about 53% of the time.  The chart above very roughly approximates the odds of the market based on the number of days.  The average returns from when you're right is a lot less than from the average returns when you're wrong, but in terms of the number of times correctly the percentages above very roughly approximate the odds.

Knowing these odds, it's not surprising to find many long systems promising you the moon.  Long systems should already have a built in positive advantage.  It's a strong tide that already pushes you towards winning.  

Odds are if someone is losing money in the markets after a few years they're doing something wrong.