Explain to a 5 year old, how is trading different from gambling?

[ElCubano]

Quote from total_keops:

The casino offer you drinks and food, the market dosen't.
Both have a negative expectancy (comish and spread in trading, rake or negative odds in a casino). Both are not a zero sum game.

In a poker room the casino may actually be losing money...the rake they take has a cap per hand ( 10% or $5.00 cap limit ) no matter how much you bet or is in the pot. 30 hands per hour is about $150.00 give or take per hour...9 mofos at the table drinking 2 or 3 drinks per hour is about $15 or $20 value each...some may drink more some may not drink but order cokes and other stuff...plus, the employees associated with that table have o get paid. Dealers, The eyes, waitiers...etc.

the only reason casinos have poker is to keep you from leaving their hotel...

 

[ElCubano]

Quote from logic_man:

I agree with this. There are mathematical proofs that certain gambling games will never results in positive expectancy, but there are trading methods which can show positive expectancy over hundreds or thousands of trades.

until you go on a bad run or the market changes on you. How would you know after 1000 trades when you should or should not continue that startegy?

The act of placing a bet on an unknown outcome is and will always be gambling...by definition.

 

[1765hillwood]

If there is no difference, then people with basic logic are just luckier then everyone else? Successful traders don't need charts? A math PHD just happens to be consisently lucky?? so one can conclude any joe can out perform a Goldman Sachs trader,?????????

 

[ElCubano]

Quote from 1765hillwood:

If there is no difference, then people with basic logic are just luckier then everyone else? Successful traders don't need charts? A math PHD just happens to be consisently lucky?? so one can conclude any joe can out perform a Goldman Sachs trader,?????????

How about the PHD's that blew up, who thought they had a conisistent strategy until the day the music stopped...were they gambling? the end result making or not making money doesnt change the fact that placing a wager or a string of bets on an unknown outcome isnt gambling. Even if you have a proven record or a quantifiable edge you will always have a risk of losing...even if at the end of the day you are a gazzillionaire...just because it is gambling doesnt mean you cant make money ...

 

[1765hillwood]

Yes when you trade you will have your losing trades no way around that fact.

 

[galvinlee888]

Quote from total_keops:

The casino offer you drinks and food, the market dosen't.
Both have a negative expectancy (comish and spread in trading, rake or negative odds in a casino). Both are not a zero sum game.

Simple but honest answer.

Trading (especially those day trading) is a negative expectancy game- commission and slipage in spread will eat you alive, not even mentioned some other unfair practice from big fishes(insider info, stop loss hunters, fake breakout and etc)

Many posters here claimed they profited from day trade, but none of them can show proof they really can do this in long term(show live result in more than 5 days). IMHO, those posters are either losers that like to make themselve feel good by posting some BS claimed, or they are been hired by brokers(see who own this site) to trick newcomers that trading is the route to financial independent , an exact same tricks or casino used.

 

[logic_man]

Quote from ElCubano:

until you go on a bad run or the market changes on you. How would you know after 1000 trades when you should or should not continue that startegy?

The act of placing a bet on an unknown outcome is and will always be gambling...by definition.

That's why I made the distinction between gambling games WITH KNOWN NEGATIVE EXPECTANCY and trading, where expectancy can be positive or negative, depending on the skill of the trader. In games with known negative expectancy, there is no possibility of future changes which would create positive expectancy, so the outcome actually isn't "unknown", it's negative, nor in trading is it certain that future changes will change a positive expectancy strategy to a negative expectancy strategy. What if the market changes in such a way as to make your strategy more profitable, i.e. your second set of 1000 trades turns out more profitable than your first 1000 trades? There is no a priori way to determine that it won't.

Also, in true gambling, there are no feedback mechanisms. You can't "change strategies" in roulette, for example, based on prior outcomes, whereas you can in trading, such that the addition of 1 or more rules to your negative expectancy strategy can shift it to positive or a positive expectancy strategy to an even more positive expectancy strategy.

I don't know how to make the distinction any clearer, so if you don't get it, forget it.

 

[intradaybill]

Quote from Debaser82:

Both deal with odds and probabilities, don't they?

"If you think a rock has a soul, then a rock has a soul", A Buddhist monk.

 

[ElCubano]

Quote from logic_man:

That's why I made the distinction between gambling games WITH KNOWN NEGATIVE EXPECTANCY and trading, where expectancy can be positive or negative, depending on the skill of the trader. In games with known negative expectancy, there is no possibility of future changes which would create positive expectancy, so the outcome actually isn't "unknown", it's negative, nor in trading is it certain that future changes will change a positive expectancy strategy to a negative expectancy strategy. What if the market changes in such a way as to make your strategy more profitable, i.e. your second set of 1000 trades turns out more profitable than your first 1000 trades? There is no a priori way to determine that it won't.

Also, in true gambling, there are no feedback mechanisms. You can't "change strategies" in roulette, for example, based on prior outcomes, whereas you can in trading, such that the addition of 1 or more rules to your negative expectancy strategy can shift it to positive or a positive expectancy strategy to an even more positive expectancy strategy.

I don't know how to make the distinction any clearer, so if you don't get it, forget it.

I understand what you are saying.....but adding one more rule can also make its expectancy more negative. You are assuming that you will know before hand what rule needs to be tweeked and when and where in the future your current startegy will be voided out. Not knowing for 100% certainty the outcome of the next trade or the next 1000 trades falls under the true definition of gambling...You can make a boat load of money and have a strategy that is proven in realtime and it wont change that fact...so if you dont get it forget it...the fact that you could be a gazzillionaire after 100 years of trading wont change that fact.

 

[logic_man]

Quote from ElCubano:

How about the PHD's that blew up, who thought they had a conisistent strategy until the day the music stopped...were they gambling? the end result making or not making money doesnt change the fact that placing a wager or a string of bets on an unknown outcome isnt gambling. Even if you have a proven record or a quantifiable edge you will always have a risk of losing...even if at the end of the day you are a gazzillionaire...just because it is gambling doesnt mean you cant make money ...

Well, we only really hear about the ones that blow up, though. What you need to look at (and what the paper I linked to kind of does) is look at the expected number of "blow-ups" versus the actual and see how the two compare under the assumption that there is no skill involved in trading. To take an extreme case, if trading is truly random, one would expect 50% of PhDs to "blow up", but if only 20% of them actually blow up, the assumption of randomness is likely to be incorrect, and when I say likely, it's probably on the order of 99% likely to be incorrect. You do understand that under probabilistic conditions, nothing is ever "proven", it's just that a specific alternative to what you think is happening is shown to be unlikely to be true, right?

Read the paper, because it shows that the idea of randomness/luck is simply not the most likely explanation of trading returns. So, if you are, as you seem to be claiming, someone who guides his decisions by probabilities, your best course of action would be to develop trading skills and then put them to use in the marketplace.