Law of truly large numbers (coincidences) :
"That a particular specified event or coincidence will occur is very unlikely. That some astonishing unspecified events will occur is certain. That is why remarkable coincidences are noted in hindsight, not predicted with foresight."
--David G. Myers
In developing an approach to making money trading you need to consider rare events which impact the market or security you trade or which in an extremely rare event could do so.
A stock which is halted or an entire market which trades limit down or up while you eat a snack in the next room could ruin your trading day, week or career, if not planned for. To plan for such you need to have some appreciation for the mathematics involved and the statistical probabilities.
A good example of the term standard deviation as an introduction to probabilities is given in the article on this web site: http://www.robertniles.com/stats/stdev.shtml I suggest reading that article.
"One standard deviation away from the mean in either direction on the horizontal axis (the red area on the above graph) accounts for somewhere around 68 percent of the people in this group. Two standard deviations away from the mean (the red and green areas) account for roughly 95 percent of the people. And three standard deviations (the red, green and blue areas) account for about 99 percent of the people."
A glossary of Statistical Terms is to be found here: http://www.stats.gla.ac.uk/steps/glossary/probability.html
In practical terms a rare event which falls outside of the usual expected news or influence on the market may happen more often than traders plan for or have adequate solutions to as evidenced by the fact of failure of most day traders and many experienced traders working for large firms or hedge funds. Brillance in theory and approach while leaving out the detailed plan for an unexpected disaster relating to the security may lead to a personal or trading disaster for the trader.
In doing such a plan as to how you might handle an unusual event (outside of the second deviation and/or third) look for examples where such disasters have occured in the past and be prepared to execute a trading solution to the situation that will be within your means and resources.
Part of dealing with the fundamental value of a security or market is the anticipation of each possible outcome of trades taken. Do everything possible to safeguard yourself from a major loss due to a singular or highly rare event.
