Tips & general help to make you a better trader by 
Ok folks now that everyone’s head is throbbing with this the answer.
Drum roll…. (insert own sound effects)
Answer = 10
The funny thing is that out of all the possible answer I don’t think that this was one given, although it was mentioned mid way through the comments.
How did I get that? 1 + 2 + 3 + 4 = 10
Before you all shout at me for such a simple sum ask your self what is more important;
- The answer?
- OR
- How you came to an answer?
The object of this game was to highlight some of our failures in logical thinking. Many people simply put the answer that they thought which was simply a guess. With a little prompting some of you started to think about this and what rules need to be used to come to a conclusion.
Even the most obvious answer, 5, has a set of rules that has been bred into us from an early age as a basic number sequence. So before we come to any answer we need to establish what the rules of the game are otherwise we are making simple guesses and assumptions to ascertain an outcome.
Now lets think about this in trading terms. Mr Market knows the rules and with that same number sequence there are a certain number of possible outcomes. As traders we are looking for outcomes based on a certain sequence of events leading up to making a trade decision.
To make this decision we need a plan. We need a rule set. We don’t know the rules of the game but we do know that when certain things happen we can assume a favourable outcome.
5 is the most obvious answer and is what all the so called text books tell and and is really what Joe Public is doing and loosing money as a result. So what other outcomes could there be.
What I am telling myself as a rule set for a trading plan is that every time 1,2,3,4 happens I expect an outcome based on 1+2+3+4=10. I have researched, back tested and forward tested this rule set and I’m happy that this is a set of rules that I can follow and make money in the market with.
The point is I have a plan based on a logical set of assumptions with a tested and expected favourable outcome based on probability.
As traders we need to always be thinking about all the possible scenarios that could develop and take a course of action if those events fit into the trading plan that you have devised, researched and tested.
So one last question.
Do you have a trading plan?
Hi Phil,
Just saying the answer is ‘10′ is as illogical as saying the answer is Orange Juice. Because the question is a open ended sequence, so you can make up any type of recurrence sequence from there or you can guess whatever you would like. Hence, i strongly disagree with your answer.
Alternatively, it would make sense given a sequence like this:
1,2,3,4,?,6,7,8,9,30,……..
So, i would say, your question and answer does not really make proper sense.
Hope, i made my point.
Thank you.
Greetings
Truth be told, I was expecting something more profound and insightful but what you say Phil is absolutely spot on and I think herein lies a valuable lesson for all, traders or not.
Its no surprise that the market has its own set of rules (that noone really knows) but it our responsibility to create a solid trading plan based on, as you say, a logical set of assumptions with a tested and expected favourable outcome based on probability. In other words, for something to work its gotta be tried and tested with certain assumptions and rules to ensure that the outcome is favourable and consistent.
Thanks Phil for a really interesting and thought provoking exercise.
I can answer your last question with absolute certainty, unlike the previous one, - No! But this will be my next mission - to generate a trading plan and test it.
Ameya
But this is only logical under your trading plan. This doesn’t mean that we would have come to this answer if we weren’t following YOUR trading plan… so if under my trading plan the answer is 5, then that is the correct answer as well…
its the feb- sequence = 1 + (2)= 3 + (3)= 6 + (4) = 10
because of the crisis the trades are becoming very technical. and technical is easy
Hi Mike,
The sequence given by Phil is not a fib sequence so your analogy is out of context. Fib sequence is a continued fraction (1+1/(1+1/(1+1/1+…..)), and we can derive to a number by manipulating it in various ways.
You have used three numbers (1,2,3) of the fib sequence used in the given series to derive to 10; however, we can also derive to a combination of numbers from this set by using the ordered pairs of subsets, or we can also use the unordered pairs of subsets in a Cartesian Plain to derive to various results. Hence, simply declaring the result as 10 must be overlooked.
So, i still stand with my first comment here.
Thanks