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Profit Guilt
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Profit Guilt

  #51 (permalink)
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tigertrader View Post
one of the most specious arguments, i have ever read; although i do like your subs. just because you claim to be a player that has built positive expectation into his game, doesn't make you the house. and, it certainly doesn't mean that you possess an edge, certainly not in the literal sense. all it means is that unlike the majority of other traders, (who are their own worst enemy) you have developed a reason based approach to trading that is not driven by emotion and bias. that certainly does not qualify you to claim to be the house. you are just a player who is a willing winner, who occasionally loses. the minute you think you think you have an edge over the market, or you are even on a level playing field with market, the closer you are to ruin. eight years is a drop in the bucket in the life of a trader, especially ones who does not recognize that humility is the most powerful currency to prevent the house from collecting a larger toll than you should pay. the market will eventually evolve from it's current state to another vastly different form, and it is you, the player, who will have to adjust. the market is the house.

I appreciate your concern and attempt to help me see the “error of my ways”, but believe me it’s unnecessary. I am more than aware of the pitfalls of this business, even after “only” a decade.

I learned to embrace uncertainty a long time ago, well before pursuing trading as even a part-time vocation. I am the humblest person you’ve (n)ever met. I have no ego and know that everything can be taken away. I worked in an industry for 25 years where even the top performers were “churned and burned”. After 25 years I couldn’t take the motion sickness or salve for the burns anymore, so I “semi-retired”. I see you’re from the Philly area too… I don’t know how long you’ve lived here but maybe someday I can buy you a beer (Dos Equis I presume) and we can chat about it.

As far as my argument being specious, you’re entitled to your opinion but I’m not here to argue with anyone (and shouldn’t have to). This issue is really black and white with no shades of grey.

People believe “the market” is a lot of things. Most of these beliefs are not true, just bogeymen created to scare new participants into either staying away or acting in a certain manner if they choose to proceed. The market is not a bogeyman, it’s not a thief, it’s not a bully, and it certainly is NOT the house. Unless by “house” you mean the figurative place where traders gather to trade, and we both know that’s not the terminology being used here.

The market is just a facilitator with absolutely no interest in the game. Not only does the market not have the ultimate edge, the market has absolutely no discernible edge except for the participants who choose to trade without one… therefore the market can not be the house. Yes, I do have an edge over “the market” because the market is only a collection of buyers and sellers; and if I didn’t think I had an edge over at least some of them then there is no reason for me to trade.

At best the market is a landlord that collects a rent from traders who choose to trade. How much rent you pay depends upon how good (or bad) of a trader you are. There is certain “rent” paid by everyone, and some choose to pay more by losing more than they should. Some of those participants do it on purpose, like commercial hedgers whose profits are collected outside of the market in their own industry, and some do it over the long run by not having an edge.

If you know you have an edge and can exploit that edge over the long term, then like me, you are the house… just like a casino. If you can’t tell me what your edge is then you don’t have one and you are a gambler playing a game with negative expectation over time… like a gambler inside a casino. The market doesn’t decide either of these paths… only the individual trader can.

The fact that I even get a small amount of pushback from any professionals over this is very baffling to me. I guess I can just consider it another part of my edge.

No matter how you feel about my analogy the offer of the beer stands…

Jim

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  #52 (permalink)
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the lone trader does his analysis and doesn't worry about being taken because he is just one guy trying to make a few trades. and then his setup happens and he takes his position…and the market does exactly the thing that will cause him the biggest loss. how can this be? he thinks. He is just one clown trying to clip a few ticks or points, here and there, not worthy of being a target. But he starts to suspect that maybe he is just one of a thousand clowns, or ten thousand, who are all doing exactly the same analysis at precisely the same time and taking the same positions, which are exploited by a better algo in a co-located box somewhere with huge backing. this "thousandth clown theory" starts to gnaw at him, makes him doubt - quoted from vic tor niederhoffer

a trader puts on a bond position only to learn later that day that the minutes of the fomc were released secretly to 100 politicians and bank officials, on a "need-to-know basis, and they were acting on it 10 hours before the release.

you're trade opm and you are long up the wazoo, and the market is against you. the floor governors at the cme are well aware of this fact, and fade your position, right before they raise margins, and force you out of your position.

the market exacts a toll from your every action. you take less risk, there is a premium you must pay to the market, in reduced profits. the fact that you can eerily predict your average return and that your returns are not "lumpy" implies that very scenario. you are paying a premium to the market to ensure that your profits conform to an average, at the expense of potential larger profits.

you have no control over the market environment, only yourself. but, to a great degree the market does exert an influence over the way you approach and trade it.

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  #53 (permalink)
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JerseyJim View Post

If you know you have an edge and can exploit that edge over the long term, then like me, you are the house… just like a casino. If you can’t tell me what your edge is then you don’t have one and you are a gambler playing a game with negative expectation over time… like a gambler inside a casino. The market doesn’t decide either of these paths… only the individual trader can.

I don't necessarily think that having an edge makes you the house. A card counter can get an edge in blackjack but that doesn't make him the house. A commodity producer may have an edge over most people because the have information that most people don't have access to, but that doesn't make them the house. Not unless you are involved in every single hand the way the casino is. A trader, or a gambler for that matter, may have a positive expectancy though.



JerseyJim View Post

No matter how you feel about my analogy the offer of the beer stands…

What is this about free beer?

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  #54 (permalink)
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If the exhange is the house, brokers are dealers, and the game is the product you trade. What does that make the trader...

One of the biggest illusion we cast upon ourselves is that we are in control.


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  #55 (permalink)
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tturner86 View Post
What does that make the trader...

Haven't you heard? The trader, positive expectancy firmly in hand (and receiving hard earned and well deserved attaboys for this accomplishment), repeats the phrase "I am the house," defying logic and good reason, and it is so.

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  #56 (permalink)
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tturner86 View Post
If the exhange is the house, brokers are dealers, and the game is the product you trade. What does that make the trader...

The market is the house/casino, the exchange is the tax collector, brokers are junkets that bring in the players. the game is the product you trade. Traders play the game, either as the dealer or gambler.

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  #57 (permalink)
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I would say the Exchanges are the house.

Mike

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  #58 (permalink)
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Big Mike View Post
I would say the Exchanges are the house.

Mike

Most do, but I don’t.

To operate as the house (as this original analogy began, as a traditional casino full of negative expectation games) an exchange would have to actually be in the game. In my view the exchange doesn’t qualify because it is just a facilitator… another cost of doing business to get to the actual game.

An exchange might be the house who takes the rake in a poker room or a vig on a sports book, but not in a traditional casino where the house plays the game alongside the gambler, albeit with an edge.

When trading you have three choices… trade with an edge like a pro (house), trade without an edge like most retail (gamblers), or hedge (bet minimally to collect your comps).

One more thing to be perfectly clear… a pro can have an edge with ANY method… I’m not limiting the method from where this edge can come… fundamentals, technical, discretionary, mechanical, etc… It’s just tougher to define an edge with some methods than others and therefore harder to be sure you actually have one.

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  #59 (permalink)
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JacLau View Post
Traders play the game, either as the dealer or gambler.

Exactly. And the dealers are a rep of whom? Or maybe the casinos you play in allow their dealers to play by their own rules.

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  #60 (permalink)
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US Bond Trader View Post
What is this about free beer?

If you’re ever in the Philly area let me know… always willing to raise a glass with a fellow trader.

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