Understanding Probabilities - Tutorial Previous  Top  Next

TSPE's results are all presented in probabilities, so it is important to understand this term before attempting to interpret the chart. For some readers the term "probability" may be sufficient for an understanding of this output. For others the term may be intimidating. Probability, in a statistical setting, is simply a number between zero and one. A probability of one (1) reflects certainty. For example, there is a probability of 1.00 that at dawn the sun will rise. A probability of zero means that the event will never occur. In between 0 and 1, the chance that an event will occur is some measurable amount. A probability of 0.10 would translate into a situation where the proposed event will happen 10% of the time, etc. A probability of 0.50 tells us that the event will happen half of the time.

Probability theorems tell us that, from the relative frequency of all possible events, a particular outcome will occur some computed percentage of the time. If TSPE tells you that the probability of avoiding bankruptcy with a given capital stake is 94%, then there will be a 6% (1.0 - 0.94) chance that your account will be forced into bankruptcy with that capital stake. Such a large (6%) chance of loss would not generally be acceptable to most traders.

Once goals are set in terms of profit and time targets and probabilities are understood, click [Next] to view the Capital Analysis results.