Why it matters
Base rates anchor expectations and prevent overconfidence.
Decision use: treat this term as a risk input. If you can’t observe it, you can’t size for it.
Common trap
Ignoring base rates because stories feel more persuasive.
Example
Assuming most traders are consistently profitable because a few are visible.
Operational cue: if you can’t point to it on the chart, in the DOM, or in your broker logs, treat it as a story and trade smaller.
Notes
Base rates are boring and powerful.
Quick rule
- If you see this repeatedly, you are in a different regime than your model assumes.
- Regime change usually means position size change.
- When in doubt: trade smaller, or don’t trade.