It's not just about developing your edge, it's about quantifying it instead of relying on guesswork- Any analogy based on gambling should associate you as the "house" instead of the player.
99% of what you hear about trading is White noise.
"Free markets work because they allow people to be lucky, thanks to aggressive trial and error, not by giving rewards or incentives for skill. The strategy is, then, to tinker as much as possible and try to collect as many Black Swan opportunities as you can"
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There are a number of very unfortunate public misconceptions about trading, and unfortunately they're being perpetuated by academic theory.
Both the Random Walk Hypothesis and the Efficient Markets Hypothesis generally assert that there can be no consistent edge in trading, except that which can be had by cheating (trading on inside information, front-running big accounts, etc.)
Millions of people are taught this in finance courses all around the world every year. As a result, there are huge segments of the public that genuinely believe any successful trader is either a cheat or a fluke. The fact that there are so few consistently profitable traders is taken as further evidence to support these beliefs.
So if you're an independent trader and you make money, then, to most people, it can only mean that you're a bad person. Whether a cheat or a a reckless gambler, it doesn't make much difference.
You can try to explain to them how this is not actually the case, but frankly, most of them don't even want to hear it. It would challenge their own self-righteousness judgments and would require them to change their mind. People don't like to be proven wrong. They don't like to change their mind.
So let them cling to their fantasies because, frankly, we need them. We profit from them.
It may sound perverse, but these are precisely the kinds of people we make money off every day in the markets. Their myths and superstitions provide the fuel for our trading strategies. The more, the better I say.
Last edited by Bladesmith; September 21st, 2016 at 10:36 AM.
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Oh my gosh.... YES! This was exactly the root of my concern. If I believe in anything, it is good old fashioned repeatable results that make up our reality as confirmed by the scientific method. It was the academics and industry professionals that would tell me these things that would concern me the most. I have such a strong respect for evidence based lines of thought. The skeptical financial analyst seemed to have it, while the retail day trader is more of a mystery.
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Actually, I disagree with most of the sentiment on this thread.
1. It's actually more difficult to trade than to gamble. For gambling, there is no model or specification risk because the rules of gameplay and information exposure are explicit. In trading, there's both model risk and asymmetric information.
2. It's expensive to trade. The transaction costs and expenses are very tight when you're gambling, whereas there's many more decision variables for managing your expenses for a trading environment.
3. And the markets are extraordinarily efficient. I say this despite having experienced first-hand and second-hand some of the most remarkable runs in trading. But this shouldn't be surprising at all. The barrier to entry to starting a pizzeria is very small, so you need to be good to be consistently profitable running a pizzeria. The barrier to entry to being a retail trader is even smaller, so you need to be even more skilled, lucky, and diligent than the minimally successful pizzeria owner.
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I typed "gambling" into google and found this as the definition: Gambling is the wagering of money or something of value on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods.
Is that not what you do when trading? You make a wager on an uncertain outcome (future price change) with the intent of making additional money. Not much different than betting on the outcome of a sporting event. Although trading is a little more risky because in sports betting you can never lose more than you wager, but in trading there is always the very small chance of an outlier event (remember Swiss Franc 2 yrs ago?) causing you to lose much more than you expected.
I mean come on... trading is a form of gambling. Just admit it! This topic always used to come up from time to time when I used to spend a lot of time reading forums. People would try to argue that trading was not gambling, and if that didn't work the next step was to come up with all kinds of analogies to show that all of life was a gamble. Such as suggesting that running a business was gambling, or driving to work every day was a gamble, etc. LOL. I figure it's because gambling has such a negative reputation that many people do not want to be associated with it at any cost, hence all of the rationalizing.
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If you don't know what you are doing because of lack of knowledge, experience etc. then trading is definitely gambling.
If you know what you are doing and have proven it with a meaningful track record then it most definitely is not gambling.
Successful traders are not gamblers, their "bets" are taken when the odds are overwhelming in their favor, knowing then that is the case is the hard part. You can tell if someone is not there yet when they start calling trading gambling.
Just my two cents worth...
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