Paradox?

U

Urkel

"Here's an interesting paradox. Casinos make consistent profits day after day and year after year, facilitating an event that has a purely random outcome. At the same time, most traders believe that the outcome of the market's behavior is not random, yet can't seem to produce consistent profits. Shouldn't a consistent, nonrandom outcome produce consistent results, and a random outcome produce inconsistent results?" - Trading in the Zone/Fisher p.102

Discuss
 
Casino game results follow a normal distribution with rules that give them a small edge. No trading system I have ever seen has a true normal distribution. They tend to have fat tails. Since trading systems do not have a normal distribution, it is much harder to predict an average gain/loss per trade over millions of trades. The law of large numbers does still apply, but the mathematical models that rely on a normal distribution are not entirely accurate.

-Raystonn
 
Raystonn,

A truly coherent reply - well said!

The only other thing I'd add is that games (roulette, blackjack, poker, etc) take place in a finite universe (52 cards only in the deck, etc.) which makes the odds calculable. THe market does not represent a finite universe.
 
For what it's worth; profit, loss, edge and time exposure in gambling are defined by the rules of the game(except blackjack & poker). In the market, those four things are variable.
 
Price behavior of a security might show 99 % disordered price behavior and 1 % ordered price behavior (sometimes called a trend). The ordered part may only appear occasionaly, perhaps once a year. Trading results could vary depending on the timeframe and method used.
 
You must log in or register to reply here.
Back
Top