Strategy Trading, Probabilities & Blackjack/Poker

[psytrade]

efficient market - versus non random

Well, the best analogy is the house versus the gamblers.
Some gamblers have an edge, while the house thrives on the fact that most dont. The fact that most gamblers go into a Casino knowing that they are going to lose is an edge for both other gamblers and the Casino.

 

[ElectricSavant]

Remiraz,

Good thread...

Thanks to Illiquid for sharing.

Remiraz, try a Journal and test some of your stuff. You will gain a lot...I did and many other Journal authors have expressed growth from such an endeavor.

Calling trades in a Journal and explaining your system thoroughly opens it up for commentary, while making you more responsible, steadfast and focused.

Your much into theory Remiraz, lets see some trading! LOL..attacked hehe..I want the best for you Remiraz. Believe it or not, I gain personal fulfillment to read about consistently, successful traders, which I think you are or have the potential to be.

The intellectual that Remiraz is, needs challenge. He is the typical University student...bright, young, sometimes arrogant and aggressive...needing stimulation for that fragile yet strong and developing Ego!

Confidence + Trial & Error + Vision = Path ...IN THAT ORDER

Struggle to remain humble and open as you grow wiser. and NEVER be afraid to share because of an insecurity. If it has to BE all about you...then take it like this...Helping the Trading Community to grow will help YOU to grow.

Remiraz, Actually your piece on leverage and adherence to stops compared to the amount of Capital required by the establishment was a good piece and I learned from you.

The old axioms..the trend is your friend....don't use too much leverage...bla bla bla..is misleading and just not true, but sounds good when quoted and written by posters who do not trade, such as yourself

Michael B.

 

[easyrider]

Sometimes too much intelligence is not an advantage, imo. Approaching the market from a theoretical point of view seems to me to be the hard way. If a guy of average intelligence sees someone making money and says Im going to watch this guy and see if I can figure out what hes doing probably has a better chance than a quant trying to prove why it is not possible.

 

[ElectricSavant]

yeah..especially when being able to change like a chameleon is more important than stable theories as to "the why"

Understanding does not necessarilly mean what it sounds like...Understand?

Fundamentals
TA
Long-term
Short-term
Discretionary
Price


Michael B.

Quote from easyrider:

Sometimes too much intelligence is not an advantage, imo. Approaching the market from a theoretical point of view seems to me to be the hard way. If a guy of average intelligence sees someone making money and says Im going to watch this guy and see if I can figure out what hes doing probably has a better chance than a quant trying to prove why it is not possible.

 

[illiquid]

Blackjack is a closed, finite system; basic strategy was only "proven" to work after thousands and thousands of simulated hands. Markets are a totally different ball game. By the time you cull comparable "paper" evidence to have enough confidence to employ a method, the market will probably have shifted away from that form.

An edge in the markets is not the same as knowing basic strategy; the best traders know exactly what they are looking for in a setup but are fluid at the same time. There will be times when you'll see the same exact chart pattern, same exact tape rhythm, same reaction to fundamentals, yet this time you'll buy instead of sell.

I'm curious what is it that you want to convince yourself of by starting this thread. You seem to hold the belief that since the market is random, one's actions as a trader cannot be much better than a few percentage points beyond breakeven -- as if profitable trading was so impossible an endeavor for an individual trader that you'll throw your hands up in surrender and settle for any inkling of "edge" that comes your way. But you don't really believe that an edge as simple as learning/applying basic strategy or card counting would translate into trading, do you? I learned how to play blackjack with a basic count by the time I was 18; I go to casinos perhaps only once every three or four months, yet once I sit down at the table I know exactly what to do each and every hand without second thought. If only trading were so simple. Yes, this is the attitude and confidence a good trader needs to have to succeed when he trades, but the similarity to blackjack is in the application of capital and execution over time of a method, not the process of discovering or obtaining "evidence" for the edge behind it. Even then, an edge as complex as one which continually works in changing markets will not be so black-and-white in its execution as a card game in the casino.

Quants working for multi-billion dollar funds have the abilities and tools to apply large amounts of capital for a few points beyond a riskless return; traders like us have to be far more ambitious in a certain sense when it comes to finding profitable opportunities. Given the higher relative impact of spread, commission, and occupational expenses for us small fish, I wouldn't settle for any edge in the markets that is comparable to the blackjack table -- I'd throw it out and chalk it up to a coin flip, to be honest. When you find a good setup in the markets, it will hit you in the head like a sledgehammer. Once you enter that trade and watch the rest of the market "catch up", the question of variance kinda goes out the window.

 

[kut2k2]

Quote from Remiraz:

you do know that efficient market theorists derive their findings from empiricial data?

Hoo boy! Nothing could be farther from the truth. Read up on the history of EMH and the random-walkers' worship of Louis Bachelier as some economic "demi-god" who preceded Einstein in "explaining" Brownian motion. The fact is, Bachelier's theory of stock prices had buggerall to do with Brownian motion itself except in similarity of form to Einstein's equations, and Bachelier totally blew it by using price instead of log price as the random variate. That's why he didn't get the prestigious academic appointment he coveted (which was in mathematics, not economics, but that doesn't stop the random walkers from claiming him as their own).

If EMH was based on empirical evidence, it would not have gone into quiet disfavor with those economists who are really trying to understand stock movement, not to mention being out of favor forever with active traders.

For further details, search "Andrew Lo".

 

[nononsense]

Quote from kut2k2:

Hoo boy! Nothing could be farther from the truth. Read up on the history of EMH and the random-walkers' worship of Louis Bachelier as some economic "demi-god" who preceded Einstein in "explaining" Brownian motion. The fact is, Bachelier's theory of stock prices had buggerall to do with Brownian motion itself except in similarity of form to Einstein's equations, and Bachelier totally blew it by using price instead of log price as the random variate. That's why he didn't get the prestigious academic appointment he coveted (which was in mathematics, not economics, but that doesn't stop the random walkers from claiming him as their own).

If EMH was based on empirical evidence, it would not have gone into quiet disfavor with those economists who are really trying to understand stock movement, not to mention being out of favor forever with active traders.

For further details, search "Andrew Lo".

What the heck does Brownian motion have to do with market behavior? Belief in Fibonacci mumbo jumbo makes at least as much sense.

 

[wabrew]

Quote from Remiraz:

-----------------

My question: Can blackjack theory be applied to trading?

The answer is no. For example - say you hold a 6-K and the dealer has a 5 showing, you are in the leftmost chair and you ask for a hit - what do the other 6 players do. Say 'OOOhhhh NNoooo...' Why? Because the 'rules' say do not hit this hand.

Illiquid said

"An edge in the markets is not the same as knowing basic strategy; the best traders know exactly what they are looking for in a setup but are fluid at the same time. There will be times when you'll see the same exact chart pattern, same exact tape rhythm, same reaction to fundamentals, yet this time you'll buy instead of sell."

-This is so true -- There you sit and see a stock do something familiar (like the 6-K hand in BJ), but your gut says go the other way, you do not know why, but 9 times out of 10 your gut was correct. The markets just do not have hard and set 'rules".

Good traders have that 'edge' that helps them 'know' when to go against the logic of a trade and to go with their gut.

 

[kut2k2]

Quote from nononsense:

What the heck does Brownian motion have to do with market behavior? Belief in Fibonacci mumbo jumbo makes at least as much sense.

Don't tell me, tell the "efficient market" guys. Although at this late date, it's passed beyond a pet theory to a cult tenet, so don't expect to get very far without a major deprogramming effort.

 

[Remiraz]

Quote from wabrew:

Quote from Remiraz:

-----------------

My question: Can blackjack theory be applied to trading?

The answer is no. For example - say you hold a 6-K and the dealer has a 5 showing, you are in the leftmost chair and you ask for a hit - what do the other 6 players do. Say 'OOOhhhh NNoooo...' Why? Because the 'rules' say do not hit this hand.

Illiquid said

"An edge in the markets is not the same as knowing basic strategy; the best traders know exactly what they are looking for in a setup but are fluid at the same time. There will be times when you'll see the same exact chart pattern, same exact tape rhythm, same reaction to fundamentals, yet this time you'll buy instead of sell."

-This is so true -- There you sit and see a stock do something familiar (like the 6-K hand in BJ), but your gut says go the other way, you do not know why, but 9 times out of 10 your gut was correct. The markets just do not have hard and set 'rules".

Good traders have that 'edge' that helps them 'know' when to go against the logic of a trade and to go with their gut.

actually, the "last man" thingy is myth and not part of basic strategy.

a lot of people can say a lot of things about what makes a trader profitable. tons of "truths" are being posted on ET everyday.

but none of them seem to be making any sizable bucks....