Do You Think Trading is Gambling?

[ivanbaj]

Quote from MAESTRO:

I see your point. But may I politely disagree with you. Here is why. If you had a "weighted" coin and the probabilities of heads and tails are skewed let's say 55/45 than each toss you will still not be able to "predict" nor "control" the outcome. But, if you made 1000 tosses and each time you bet on "heads" then you should experience overall positive results. It is the very difference between "average" activity and one particular outcome. "knowing" the skew of the coin converts gambling into statistical logic.

Agree. But what is the process of discovering that the coin is not fair? How do you know it is not fair?

There is a formula that shows the minimum number of tosses N, one needs to be able to determine if a coin is fair with X% of certainty.

The problem for me is that once you do find the coin is unfair. You will need to keep checking that fact constantly every N tosses. The trades you make between the checks will be a gamble. And this is with X% of certainty so there is small gamble anyway.

 

[Jachyra]

Quote from MAESTRO:

I think it is not so much the ability of a trader to discover the information, but objective properties of the game to possess structural bias that can or cannot be discovered by a particular participant makes the difference.

Unless the coin is objectively unfair the ability to discover it may not exist

Understood... but if you and I were flipping an unfair coin for money, for a long enough period of time, don't you think its plausible that eventually one of us might notice that one side of the coin seems to be coming up a lot more than the other side? At the point that one of us is willing to bet on only the side of the coin that keeps coming up more often than what it statistically should, one of two things will happen: (1) if its a fair coin then the odds of winning will not change on any single flip and you haven't gained or lost any edge, or (2) if its an unfair coin you now have a statistical edge and you'd technically no longer be gambling, despite the fact that you don't know for an absolute certainty why the coin is acting unusual.

The point being that it seems possible to make observations and surmise theories that may or may or may not be the real reason that something is happening, but simply by going through the process of creating a theory, its sometimes possible to gain an edge even if the basis of your theory is flawed or incorrect. This would be along the lines of one of use noticing that one side of the coin is coming up a lot more often than usual, but deduce something incorrect, like it must be because its humid today. Not an accurate theory, but you've been able to gain an edge nonetheless.

Of course, if you have enough correct and accurate information such that you are actually able to identify, understand, and exploit the inherent structural bias of a given system, would you not have ceased to be gambling at that point? This would be more along the lines of you and I flipping an unfair coin for money, but only one of us knowing in advance that the coin is unfair.

 

[Jachyra]

Quote from ivanbaj:

Let's keep it focused.

"the absence of any cause of events that can be predicted, understood, or controlled"

So to prove it is not gambling we need to prove:

1. Existence of some cause -> event
2. Understanding what causes the event
3. Predicting the event
4. Or controlling the cause

Is that how you see it?

I believe that would be accurate.

So for instance... if you're a trader that has a very very large trading account, and you want to make the market go up, you could conceivably just continue to buy at a set price or range of prices, and assuming that the laws of supply and demand are still in effect, and assuming that you are able to offer enough demand (buying) that it is able to outpace supply (selling), then you could conceivably control the direction of the market, and in this case drive prices higher. If you did that and were successful, I doubt you would think that you just simply got lucky... rather, the market would have done exactly as you were anticipating it would do when you started buying. I believe this would be somewhat of an example of exploiting a structural bias of the system: if there are more buyers than sellers prices go up... if there are more sellers than buyers prices go down.... completely predictable.

But whether or not you are successful in your attempt or not, the result is still governed by the laws of supply and demand, NOT BY CHANCE, so the results of whether the market will go up or down is still predictable given enough accurate information.

 

[Pekelo]

Quote from Malstrom:

Why are you talking like that?

Because:

1. If you really think that the markets are random, you are in the wrong business.

2. Your whole response was based on a false premise.

3. I felt like it.

 

[ElCubano]

Quote from Jachyra:

I believe that would be accurate.

So for instance... if you're a trader that has a very very large trading account, and you want to make the market go up, you could conceivably just continue to buy at a set price or range of prices, and assuming that the laws of supply and demand are still in effect, and assuming that you are able to offer enough demand (buying) that it is able to outpace supply (selling), then you could conceivably control the direction of the market, and in this case drive prices higher. If you did that and were successful, I doubt you would think that you just simply got lucky... rather, the market would have done exactly as you were anticipating it would do when you started buying. I believe this would be somewhat of an example of exploiting a structural bias of the system: if there are more buyers than sellers prices go up... if there are more sellers than buyers prices go down.... completely predictable.

But whether or not you are successful in your attempt or not, the result is still governed by the laws of supply and demand, NOT BY CHANCE, so the results of whether the market will go up or down is still predictable given enough accurate information.

you could also buy all the lotto tickets when the pot gets high enough and hope you are the only winner.... peace

 

[ivanbaj]

Quote from ElCubano:

you could also by all the lotto tickets when the pot gets high enough and hope you are the only winner.... peace

You need to buy all the possible combinations. The cost will be higher then the price. I doubt there that many of tickets available.

 

[ElCubano]

Quote from ivanbaj:

You need to buy all the possible combinations. The cost will be higher then the price. I doubt there that many of tickets available.

florida lotto has 6/53 23million combinations...when the pot gets to 60 million just buy all the tickets and hope and pray 10 people dont hit...

 

[Jachyra]

Quote from ElCubano:

florida lotto has 6/53 23million combinations...when the pot gets to 60 million just buy all the tickets and hope and pray 10 people dont hit...

The key is that each week when you run the lottery, each possible winning combination/permutation has the exact same chance of being hit week in and week out. Its not necessarily required that each combination have the exact same odds of being hit (although I think it would hold true for the lottery example... it would not hold true for throwing a pair of dice)... only that each week that lottery balls are drawn each combination has the same chance of being drawn as it did the week before.

This does not hold true with respect to the markets. Obviously, at any given moment, there is a much greater chance that the market will move either higher or lower depending on whether or not there are more buyers or more sellers at any given moment in terms of both price and time.

So everytime you run the lottery... same odds exist... everytime you flip a coin... same odds exist... everytime you throw a pair of dice... same odds exist... every time you take a trade... same odds do not exist.

Even more importantly... everytime you draw the lotto balls... impossible to predict the outcome... everytime you throw a pair of dice... impossible to predict the outcome... everytime you take a trade, theoretically, it would be possible to determine the outcome if you knew in advance whether or not there were more buyers or sellers at that moment.

 

[Pekelo]

Group Invests $5 Million To Hedge Bets in Lottery

Published: February 25, 1992

There is a dream common among regular lottery players: to wait until the jackpot reaches an astronomical sum and then to buy every possible number, guaranteeing a winner.

Sure, it would cost millions of dollars. But the payoff would be much richer.

In Virginia this month, one investment group came tantalizingly close to cornering the market on all possible combinations of six numbers from 1 to 44. State lottery officials say that the group bought tickets for 5 million of a possible 7 million combinations, at $1 each, in a lottery with a $27 million jackpot. Only a lack of time prevented the group from buying tickets for the remaining 2 million combinations.

While no one has come forward with the one winning ticket in the Feb. 15 lottery, several clues point to the investment group, an Australian syndicate, as the winner. If that is so, the numbers 8, 11, 13, 15, 19 and 20 will yield a prize of $1.3 million a year for 20 years to the group.

Banking officials here say the money for the bulk purchase of Feb. 15 lottery tickets came from Australia. An Australian regulatory official also said a syndicate there had notified its investors that it had won an overseas jackpot. The winner has six months to claim the prize.

Virginia officials are worried enough about a repeat performance that they met today to debate a proposal that would block bulk sales of lottery tickets.

The governing board of the Virginia lottery held a public hearing today and received some criticism. Hans Smetona, a 22-year-old pizza deliveryman here, said, "No one wants to be in line behind anyone who's there for three or four days."

http://query.nytimes.com/gst/fullpa...sec=&spon=&partner=permalink&exprod=permalink

Lottery officials speculate that the investors may have chosen Virginia for two reasons. The state had the biggest jackpot in the country that weekend. And the seven million entries required to cover all the combinations in a 44-number lottery is just half the number needed in a 49-number lottery, like Florida's. California has 51 numbers and New York has 54. Improving the Odds

 

[ElCubano]

Quote from Pekelo:

Group Invests $5 Million To Hedge Bets in Lottery

Published: February 25, 1992

There is a dream common among regular lottery players: to wait until the jackpot reaches an astronomical sum and then to buy every possible number, guaranteeing a winner.

Sure, it would cost millions of dollars. But the payoff would be much richer.

In Virginia this month, one investment group came tantalizingly close to cornering the market on all possible combinations of six numbers from 1 to 44. State lottery officials say that the group bought tickets for 5 million of a possible 7 million combinations, at $1 each, in a lottery with a $27 million jackpot. Only a lack of time prevented the group from buying tickets for the remaining 2 million combinations.

While no one has come forward with the one winning ticket in the Feb. 15 lottery, several clues point to the investment group, an Australian syndicate, as the winner. If that is so, the numbers 8, 11, 13, 15, 19 and 20 will yield a prize of $1.3 million a year for 20 years to the group.

Banking officials here say the money for the bulk purchase of Feb. 15 lottery tickets came from Australia. An Australian regulatory official also said a syndicate there had notified its investors that it had won an overseas jackpot. The winner has six months to claim the prize.

Virginia officials are worried enough about a repeat performance that they met today to debate a proposal that would block bulk sales of lottery tickets.

The governing board of the Virginia lottery held a public hearing today and received some criticism. Hans Smetona, a 22-year-old pizza deliveryman here, said, "No one wants to be in line behind anyone who's there for three or four days."

http://query.nytimes.com/gst/fullpa...sec=&spon=&partner=permalink&exprod=permalink

Lottery officials speculate that the investors may have chosen Virginia for two reasons. The state had the biggest jackpot in the country that weekend. And the seven million entries required to cover all the combinations in a 44-number lottery is just half the number needed in a 49-number lottery, like Florida's. California has 51 numbers and New York has 54. Improving the Odds

the problem here is that while it gaurantees you win it doesn't gaurantee you would be the only winner..