How it unfolds, step by step
The setup
On this chart the average trade is worth a small negative amount. The position is fixed. The line is the running total across a hundred trades.
What happens next
The line wanders early. Over the first ten or fifteen trades it is above zero as often as below. That is exactly the stretch where a sequence looks like it might be working. Then the drift takes over. It does not come back.
What it means — and does not
Nothing changed except the number of trades. A negative average produced an outcome that was unclear at ten trades. By a hundred it was clear. The extra trades did not provide extra opportunities. They provided extra certainty about a sign that was already fixed. This is the most useful thing arithmetic has to say about activity.
- Running total (₹)
- Level · 0
A small negative average per trade. Unclear at ten trades, settled by a hundred. The extra trades added certainty, not opportunity.
Show the underlying data
| Trades taken | Running total (₹) |
|---|---|
| 0 | 0 |
| 5 | 140 |
| 10 | -60 |
| 15 | 90 |
| 20 | -180 |
| 25 | -120 |
| 30 | -340 |
| 35 | -260 |
| 40 | -480 |
| 50 | -610 |
| 60 | -845 |
| 70 | -910 |
| 80 | -1,180 |
| 90 | -1,290 |
| 100 | -1,520 |
What this does not establish
Everything here rests on the average trade being negative. The honest position is that a short run cannot tell you the sign. That is the same point read the other way. The reading is refuted by a large enough sample coming out positive. The level that settles it is the , not the balance. The trap is to read the early wandering as evidence of either case. It is what randomness looks like around any average at all.
Things to check
4Is there enough evidence to say what the average trade is worth, including costs?
Would this many trades make the answer clearer, or only bigger?
Has the sign been established, or is the sequence still in the wandering stretch?
Compare the average gain, average loss and charges before increasing trade frequency.
Common mistakes
2Reading more activity as more opportunity, when it is the same average applied more times.
Concluding from a short profitable run that the average is positive, or from a short losing one that it is negative.
A sequence with a slightly negative average per trade is run a hundred times instead of ten. What changes?
- More chances to recover the earlier losses
- Nothing meaningful, because the average per trade has not changed at all
- The outcome becomes more certain rather than better
Show the answer
C. The outcome becomes more certain rather than better
A larger sample converges on the underlying average, whichever sign that average has. The extra trades removed the ambiguity that made a short run look survivable. They did not provide opportunities.
Frequently asked
3Is not a bigger sample supposed to help?
It helps you find out what the average is. It does not change the average. A larger sample makes the outcome settle on the underlying value, whichever sign that value has.
So should I trade less?
This page makes no recommendation. It says that the number of trades multiplies the average rather than improving it. The average is the thing to establish first.
How many trades before the sign is clear?
More than most people assume. The sample-size explainer on this site works through why a dozen occurrences tell you almost nothing.