We all like to talk about knowing the probabilities … and then just sticking to them. Most of us like to harangue other traders for not doing so while finding it not so easy to do ourselves.

It isn’t so easy for a number of reasons -

1. Whether you are conscious of it or not, your brain recognizes the ambiguity and uncertainty on your charts.

2. Your own level of beliefs and your confidence in those beliefs (the true “in your gut” feelings that need acknowledged) influences your view of the probabilities. This is more or less what the term “subjective probability” means.

Taleb and now Mr. Elie Aiyache, the author of The Blank Swan – the end of probability, like to say that the whole business of probability and markets is “for philistines”. They are really skipping the reality of how probabilities work inside a brain making a decision under uncertainty. It isn’t that the probabilities are worthless or non-existent, it is gaining a better understanding of how to use them for the tool they are.