the casinos have a % probability of their projection and in trading, you have a% probability of reading the market correctly in the shorter term.. longer term, nobody knows in trading due to black swans that gets neutralized in gambling.. Casinos don't want you to bet big, unless you bet often.. If we can achieve the same probability as a casino which is said to be around a 3-4% edge, it doesn't matter if that edge is less quantifiable.. In addition, a trader can see their cards before making the bet which is another edge.. The edge is to be had but other factors such as inner traits have an impact.. I like to use the word "inner traits" rather than "psychology" because there are traits like patience, preparation, work ethics, discipline and etc that has nothing to do with psychology but inner traits..
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Probabilities do not change. Going short in a major short covering burst, right below the major pivot high, chances are not so good. It may happen that you pick the top and come out unscathed, but that would be pure luck.
But where trading differs from casinos, to me, is there is an unquantifiable element that exists in trading, that no amount of math can contain. Card games, in contrast, start with a number of 52 and you eventually run out of possible outcomes, mathematically. Over enough samples, there is an identifiable edge to the house. Casinos may lose business, but rarely "blow up".
I am nowhere near suggesting that trading is not a learned skill, that luck is anything to be factored in exactly. But I do believe that we are the largest contributing factor to our own success or failure. What inner traits we bring to the table.
Is "luck" merely random outcome? Or is it the manifestation of our subconscious? Hard to know with scientific certainty. But, just for luck's sake, I would prefer to not feel that I am "unlucky".
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Just for debate... we do get the opportunity to see the "cards", but fill a room with the world's best chartists and how many opinions will there be? What we "see" is filtered by our unique set of beliefs and experiences, whether we "feel" the trade is good or bad. But does that have any real affect on the outcome?
Over a large enough sampling, those who put in the effort, follow the rules, maintain discipline and risk control, they will have a better probability of success. But a trader can practice 10x as hard as everyone else, study religiously, be disciplined beyond compare, have a great probability system, function like a machine... and still fail.
What other factor is at work that determines the winners from the losers?
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nobody wins all the time but trading is a skill based activity which takes time to develop, and its different for everyone for various reasons.
Trading is like poker in that there are no mechanical methods (not that I know of, but others may) to help you win consistently because the contextual variables are not static. Soros, Buffet and PTJ can look at the same charts and see it differently and even fade each other. If that happened, one of them is going to lose but over a larger sample, they are all successful traders.
The reason I think trading can be compared to a casino is because they only expect to be right 52-53% of the time max. I believe as traders, we can consistently achieve a weekly monthly hit rate of 52-53% as well and count on it. If not, we need to go back to sim for sure.. the probabilities don't change but there are many variables that can throw a trader off balance that cant happen with a casino and its those factors that makes capturing the trading 52-53% edge harder. Casinos don't have any additional elements to consider except math. A trader on the other hand has plenty of opportunities to self sabotage. Those are not only the psychological elements but also the internal trait elements as well.. That's what makes trading much more difficult. A trader has to
1-learn a method to read the market to give a real edge.
2-learn the nuances to execute the method.
3-deal with all his self sabotaging traits under pressure, while balancing judgement simultaneously.
That's a tall order and a lot to juggle.. If a trader is not consistent, he has to examine which element is the weak link and this is not always so clear. It will take a lot of mental work ethics on his part to try to diagnose the issue. Most good traders are willing to put in that kind of effort, and less successful traders come just short of enough effort. I doubt any profitable traders has not already gone thru this tedious and even painful process. I know one trader that spent ridiculous hours in replay and not just going thru the motion but also actively thinking about the rationale and his progress was very fast relative to most traders. That's work ethics.. It is my opinion that every good trader got that way by being excessively obsessive about trading performance and self awareness..
Last edited by Jedi; August 30th, 2012 at 12:25 AM.
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and the book by Nassim Nicholas Taleb Fooled by Randomness is a great read. The story of money managers and luck I referenced came from there. Interesting that both Taleb and Buffet have a similar story on this. Victor Niederhoffer blows 130 million bless his greedy little soul.... whew.
I think that the better players position themselves to take advantage of luck should it happen. Taleb's entire methodology was built around this. A lot of the market wizards have a "big" trade that changed everything for them. Lucky - probably - but they had set the trap for the situation and were there waiting for it to happen. If it didn't happen for them that time then they would set up to catch the next event. So understanding the phenomenon and then prepping for it. prep + luck = maybe success. It's a tough gig.
The most basic example - Think of a simple ABC pattern. It has defined risk but if you get lucky (and don't take profits at D you greedy bastard) the pattern could go on for the next year You patiently waited for the setup for a month then took it. What happens next is preparation + luck.
“Be who you are and say what you feel because those who mind don't matter and those who matter don't mind.” - Dr. Seuss
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