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Is trading a skill or is it a problem waiting to be solved.
Started:February 27th, 2011 (09:04 AM) by DionysusToast Views / Replies:3,821 / 44
Last Reply:January 12th, 2016 (12:50 AM) Attachments:4

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Is trading a skill or is it a problem waiting to be solved.

Old January 9th, 2016, 09:55 AM   #41 (permalink)
Market Wizard
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DionysusToast View Post
No - because there's no fun in us all agreeing....

Well we can disagree on that then

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Old January 9th, 2016, 02:59 PM   #42 (permalink)
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DionysusToast View Post
Some interesting comments.

Of the traders that I know - they all rely on 'pattern recognition' to some extent but it is more related to behaviour than to a series of bars creating a pattern.

Trader 1 - Trades 40 or so stocks and has been doing so for more than a decade. He'll run 1 to 3 positions at any one time. He has developed a good 'feel' for when a stock is bottoming out/topping. Obviously some of this is to do with seeing a move slow down (which can be done with candles) and some is to do with how far each instrument typically sells off/rallies before reversing. This does mean a stock can sell off hard in the morning until the Trader figures it's done and he'll get in just based on that experience with very little confirmation off the chart.

Trader 2 - Trades any earnings/news stock he believes will put in a sustained move. He has also been doing this for more than a decade. He has a good idea which news will create moves by now and he also has an idea of the type of pattern he'd like to see. Again, the hard sell off and reversal is a play but he also plays continuation moves. For this trader, all trades are confirmed with L2/Time & Sales on entry. In a sense - it's a scalpers entry at a point in time where a long term move might develop. As silly as it sounds, on some setups his stop will be 1 cent.

Trader 3 - Trades futures. Mostly this guy trades reversals. He'll trade index futures, grains,oil as well as the Eurex - DAX, Bund futures. He looks for moves of yesterdays price levels and todays price levels. He'll trade measured moves, channels and pullbacks but is mostly interested in large intra-day reversals. All entries are confirmed by DOM/Time & Sales. I have watched this trader at work many times and his ability to pinpoint reversals is uncanny. Again, he's been at this for more than a decade and knows the instruments he trades intimately.

These 3 are retail traders. The next is a pro.

Trader 4 - Actually this is 4 people, not on. This team is headed by a guy who came through the institutions and who made his personal fortune trading. The money they trade belongs to a hedge fund. Apparently there's some deal where small teams like this can get money from funds to trade as long as they are bringing in the returns. The team work outside of market hours to identify opportunities and they also work intra-day to identify them too. The guy trading does not use charts but does use L2 at times. The rest of the team use charts as they don't have the head for numbers the trader has. They can have 30 positions on at a time which is necessary as the amount of money they are using is in excess of US $20M. Again, one of the moves they love is a sell off which finds buyers.

Meeting these people was an eye opener to me. I keep in touch with them all. Traders 1, 2 and 3 have all given me some insight into their methods but trader 3 is the one that took me under his wings.

Some of the things I find of interest:

- None of them are afraid of trading a reversal in the right circumstances. The right circumstances might be that LVS generally sells off 50c before making a move up (just an example). So - despite what we hear about reversals being for amateurs, it seems there are people that have cracked this nut.
- None of them use any indicators or candlestick patterns. In fact, the analysis employed seems to be more about how particular instruments or particular events play out.
- There is no particular personality type. One of the above is most certainly NOT a zen-like trading master in control of his emotions. In fact, he flips out when he misses a trade and gets pissed off about it. Another gets pissed when he leaves money on the table. Still - both of these have personally made millions from trading.

This is what leads me to the conclusion it is skill and experience that counts.

The type of analysis I was doing before I started to meet real traders was the typical TA/Indicator stuff. I took a leap of faith with it but looking back there is no reason I should have done that, I had zero evidence that anyone was making money that way - other than books and the internet. When I met real traders, they didn't use these methods BUT they did use common methods that AREN'T in the trading books.

Hi @DionysusToast interesting question.

Just my 2cs and have penned down a lil more than i should have. There is and cannot be one definitive answer. Though I find it is a skill.

A) Trading a Problem:- For many i think it is a problem as there is no certainty in the decision making tool. And thats where i think the problem lies. A tool is just a can you be certain in trading. Most people believe a tool should be 100% accurate and tools are accurate maybe in hindsight. But spot of the moment analysis might not be correct by the individual though his/her tool shows something.

Also a reason for many to have lost...before even understanding the in/outs is the biggest hurdle when under capitalized. This is also a problem reason....that many try to explore before cash runs out. Well this is where i think a disciplined trader can paper trade..but there are different schools of thoughts on this. It takes sometime and that time can differ from individual to individual since there is no school for learning this. Yes there are schools and one can expect to get a job as a editor/analysts or something after the finance stuff they teach in schools....but that is different from a trader who has become successful.
Hence comes the need for constant search to gain insight. Also many of the people who are successful had a good mentor or friend or someone who taught them. This is where a Luck factor comes in. Did the Trader seeking to trade find or come across such a person. If not the chances are again reduced as Success mimics success.

B) Skill:- For people who have mastered or understood the rules of this game....know that it needs tremendous skill / countless hours of introspection to gain context. And REALIZE that even if everything is correct...there is no certainty in the trade. It is just a probability. Now the analysis of trying to analyze a wrong trade if all context is proper is good...over analyzing or failing to analyze may not be a good things.
The reason you cannot be 100% certain needs to be understood. Herein lies the problem. It cannot be. There are countless individuals / firms / countries trading. The presence or absence of any of these on a trading day may put an indicator / system / tool which has confirmed before to not confirm a trade any Given Day (Any Given Sunday - the 1st movie i bought )
A successful mentor increases the chances of success. It also helps to validate and bounce of ideas. This is important i think unless a individual is so skill ful that he / she does not need one. A real-time mentor if one can find one is the Best but thats not normally possible. Again Luck plays a role.
Skill / emotion or whatever you call accept a trade is not correct and get either stopped out or close a trade is a sign of skill. Many including me in the past have failed to adhere to this very simple task...believing we are 100% right. Thats a big fallacy.
A skilled trader has full control on Risk elements. They have this pat under control as his/her systems can be 100% accurate and still fail Any Given Day/Sunday .
A skilled trader also finds opportunity where others are scared or have not spotted something. Skill factor is a definite.
Am discretionary so have never explore systems. But am guessing the folks who are good at system trading also have an excellent level of skill.

What must be if someone has good knowledge which translates into skill....every turn in the markets is predictable mealtime without any patterns and such or with patterns and whatever one uses. However markets are still a probability which even after this tremendous insight cannot be 100% certainty due to many other factors such as News/Geo-political/Fx /Yields changes...etc etc and the list goes on.

Well...this can go on and on. However for me i think this occupation or vocation or en devour in Trading needs a High Degree of Competency which comes from well ingrained skill levels to analyze / mitigate risk. However the learning i think never stops. A good trader is always there to up her/his level. It may be different from a trader trying to seek a solution to the world of trading. And there is always an element of luck in also in Trading

cheers n best to all

Last edited by paps; January 9th, 2016 at 03:43 PM. Reason: rem some stuff...not in cntxt
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Old January 9th, 2016, 05:05 PM   #43 (permalink)
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If trading was just a problem waiting to be solved, then the best mathematicians or the guys with deepest statistical understanding would be the best traders. This is true sometimes, however it often isn't the case because it's that intuitive skill that these sort of people are lacking. This type of skill takes years to develop and can't just be taught or proven by analyzing data sets, hence why most successful traders have taken multiple years and attempts to develop into what they do now.

However, trading is still a problem waiting to be solved. It's just without the skill you're never going to solve the problem.

"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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Old January 10th, 2016, 04:03 PM   #44 (permalink)
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xplorer View Post
This thread delves quite deeply into the relationship between luck and skill

Wow excellent thread.

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Old January 12th, 2016, 12:50 AM   #45 (permalink)
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