tastycrypto’s software will enable users to custody, control, and take ownership of their digital assets.
tastytrade logo

Portfolio Management: Number of Occurrences


When it comes to probabilities, we have to understand that there are winners and losers. Even if we have a 99% probability of success on a trade, one percent of those trades will still be losers over a very large pool of occurrences. Let’s say that we reach our true probability over 1000 occurrences. We could expect to see 990 winners and 10 losers. The question is - where will those 10 losers occur? Nobody knows, and that’s the importance of trading small.

Trading Small

Trading small and gathering a large number of occurrences play hand in hand. To put it simply, if we trade small relative to our portfolio size (<5%), we allow ourselves to obtain a larger number of occurrences and lower our portfolio risk per trade. If we have $100,000 and we trade very small and only deploy trades that are 1% of my portfolio, we are looking at a buying power reduction of $1000. This is very small, and puts us in a good position to thrive in the long run. Positions that go against us will not destroy our portfolio when trading this small. On the other hand, if we only have $10,000 and make trades with a buying power reduction of $1000, we’re using 10% of the portfolio per trade, which becomes problematic when we incur losses. Trading small allows us to stay alive when probabilities go against us. Over time, if we trade small we allow ourselves to reach our true probabilities of the trades we route.

Reaching True Probability

With a small number of occurrences, we would consider ourselves lucky if we actually reached our true expected probability. Let’s imagine we placed a trade with an 80% probability of success, and we only allowed ourselves 10 occurrences. To reach our true probability of success, we would have to have exactly 8 winners and 2 losers every time. With this small sample size, it’s too easy to have one trade go awry and alter our results. We could have 5 losers right from the beginning, or 10 winners in a row. Either way, it doesn’t give us a strong case for reaching our true probability.

Over a much larger number of occurrences, however, we would be very surprised if our realized results were far off from our expected probability. Taking that same trade example, if we had 10,000 occurrences, we would expect to see realized success be between 75-85%. The more occurrences we have, the closer we would expect this number to be to 80%.

We need to remember that we are trading in a random environment, and even though we have expected probabilities, it’s going to take some time to realize those results. Trading small, and eventually obtaining a large number of occurrences are two ways we can combat the random acts of the market, and ensure we maintain a proper amount of capital in our account.

Supplemental Content

Episodes on Number of Occurrences

No episodes available at this time. Check back later!

tastytrade content is provided solely by tastytrade, Inc. (“tastytrade”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds invested. tastytrade, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastytrade is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparison, statistics, or other technical data, if applicable, will be supplied upon request. tastytrade is not a licensed financial advisor, registered investment advisor, or a registered broker-dealer. Options, futures and futures options are not suitable for all investors. Prior to trading securities products, please read the Characteristics and Risks of Standardized Options and the Risk Disclosure for Futures and Options found on 

tastytrade is a trademark/servicemark owned by tastytrade.

tastyworks, Inc. ("tastyworks") is a registered broker-dealer and member of FINRA, NFA and SIPC. tastyworks offers self-directed brokerage accounts to its customers. tastyworks does not give financial or trading advice nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastyworks’ systems, services or products. tastyworks is a wholly owned subsidiary of tastytrade, Inc (“tastytrade”).

tastyworks, Inc. (“tastyworks”) has entered into a Marketing Agreement with tastytrade (“Marketing Agent”) whereby tastyworks pays compensation to Marketing Agent to recommend tastyworks’ brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastyworks. tastytrade is the parent company of tastyworks. tastyworks and Marketing Agent are separate entities with their own products and services. tastytrade has different privacy policies than tastyworks.

Quiet Foundation, Inc. (“Quiet Foundation”) is a wholly-owned subsidiary of tastytrade The information on is intended for U.S. residents only. All investing involves the risk of loss. Past performance is not a guarantee of future results. Quiet Foundation does not make suitability determinations, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of Quiet Foundation’s systems, services or products.

© copyright 2013 – 2022 tastytrade. All Rights Reserved. Applicable portions of the Terms of use on apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastytrade’s podcasts as necessary to view for personal use.