Explain to a 5 year old, how is trading different from gambling?
- Thread starter Debaser82
- Start date
Then I guess the management of Coca-Cola was "gambling" when they introduced New Coke, right? By your definition, they were putting something out there that hadn't been proven in real time and so even though they spent millions of dollars in market research, it was all just a gamble. On the flip side, Apple was "gambling" when they introduced the iPod, which also hadn't been proven in real time, just in a bunch of market research. Or the Walkman, or the Model-T or ice cream cones or Crocs or laptop computers or yadda, yadda, yadda.
The problem with this, of course, is that by your definition you've categorized about 99% of life as "gambling". It's way too broad to be a useful term.
I think a major part of the problem is that most traders don't have a coherent "philosophy" of markets, e.g. what is price, why does it fluctuate, what does it mean that the fluctuations differ in time and size, etc. Without that, you are lost and it can all seem so overwhelmingly random, while with it, you have a map to the likely outcomes and understand that each tick of the market is of significance in the overall scheme of things. If I need an ES move of 5.25 points and it only moves 5, I don't trade. How is that any different from a poker player who needs a king or he won't bet, so when he gets dealt a queen, he folds? Again, it is universally agreed that poker is a game of skill, so if there are direct analogies between the betting conditions in a trading strategy and the betting conditions in poker playing, how exactly do they differ?
Imagine a poker room with a tiny ante (data, hardware etc.), a reasonable drop (commission) and a group of players at the table that will fade your play in virtually unlimited size -- ES as an example.
If you had the patience to wait for only the choices hands and had a sound money management plan you would win. I am not suggesting it is simple but there are people who play this game in the markets every day and, over time, make a great deal of money. Those players can discern that pocket aces are there to play. Clearly a much harder thing to observe in a market than at a table. Yet some have acquired the skill to do just that.
No need to bet every good hand -- just the great ones. And, unlike poker, in big liquid markets the other players will call your bets virtually every time. I suggest you wait until he is 12 to explain it. Not everything of value needs to be comprehensible to a five year old.
If you had the patience to wait for only the choices hands and had a sound money management plan you would win. I am not suggesting it is simple but there are people who play this game in the markets every day and, over time, make a great deal of money. Those players can discern that pocket aces are there to play. Clearly a much harder thing to observe in a market than at a table. Yet some have acquired the skill to do just that.
No need to bet every good hand -- just the great ones. And, unlike poker, in big liquid markets the other players will call your bets virtually every time. I suggest you wait until he is 12 to explain it. Not everything of value needs to be comprehensible to a five year old.
Yeah, it did, but I doubt that anyone within the company would have called what they were doing "gambling". It was one of the most heavily-researched product introductions in the history of corporate America.
Point being, your use of the term "gambling" doesn't distinguish between a guy throwing darts at a dartboard to pick whether to go long or short and a team of 100 market research professionals poring over data to determine whether or not to introduce a new product.
You seem to think that because there are only probabilities, that makes everything a gamble, thus effacing all gradations of skill. That's your right, it's just not intellectually coherent nor does it square with empirical experience.
The main problem with that statement is what do you think the books and articles are written about? It's what actually happens in the marketplace. The statistics in the paper I referenced came from actual data, so I'm not sure how it would follow that they were somehow not reflective of the real distribution of returns among traders of varying skill levels.
Even if you go back to the overarching statistics about the percentage of traders who don't make any money, you are still left with some percentage of traders who do. The question then is whether or not those who do make money do so because of skill or luck. The data say skill, whereas Cubano is saying luck. Fine, but what data is Cubano using to reach that conclusion? It can't be market data because that's the data that led to the conclusion that it's skill. If making decisions based on data makes me a "bookreader and armchair quarterback" in your eyes, I'm OK with that.
Also, ironically, if followed to its logical conclusion, Cubano's perspective would lead one to never trade, thus making it difficult to become a "real experienced trader", while my perspective would allow one to trade whenever probabilities favored doing so, thus allowing one to become a "real experienced trader". That's quite the paradox you've stated in your judgment of which of us is trading and which of us isn't, although, to my knowledge Cubano could very well trade more frequently than I would ever consider trading, although it would be difficult for him to square his statements with actual trading.
I don't think you could have missed the point more if you had tried.
I've always seen it like this.
Gambling is when you have negative expectancy and you hoping that luck makes you money on any given play, usually a product of addiction.
Trading is when you have proven positive expectancy and you know that over the course of time luck or no luck you will come out ahead.
FoN
Gambling is when you have negative expectancy and you hoping that luck makes you money on any given play, usually a product of addiction.
Trading is when you have proven positive expectancy and you know that over the course of time luck or no luck you will come out ahead.
FoN