To those that say trading is a 0 sum game...

Dalmation · May 22, 2011

@swannoir

Interesting points swan. However, my experience was quite the opposite. My grandfather-a humble auditor/ accountant bought stocks during the depression and they grew in value multiple fold into the millions untill sold in the 1980s.

Scataphagos · May 22, 2011

It's amusing to see how much interest there is in "is trading a zero sum game?", and "is trading gambling?"

Most can't see the correct answer... but even when they do the truth doesn't improve anyone's success.

Fireplace · May 22, 2011

Honestly Dal, I am just as happy if you don't believe me as if you do. I doubt you are the kind of person who wants to make short term trading their niche style. So you really aren't the person I am speaking to anyways.

My goal in these discussions is to encourage the few people who do have the right mindset that profitable short term trading IS a style that can be honed and is possible to do consistently and over time. I'm not guaranteeing that anyone can or will succeed, only that there are those of us out that that do and we are not unique. Others can achieve great things too.

Quote from Dalmation:

Of course not, FP.

Based on the generic descriptions of yours and others TA trading --it is very unlikely that you are profitable or if so, it's purely a streak o luck. There is no edge in your description as it's the same thing taught adnaseum

"Keep away from people who try to belittle your ambitions. Small people always do that, but the really great make you feel that you, too, can become great."
- Mark Twain

Swan Noir · May 22, 2011

But that is my point. Timing is key in investing just as in trading. Your grandfather did not benefit from an ever upward wealth effect he bought when they were on sale.

Quote from Dalmation:

@swannoir

Interesting points swan. However, my experience was quite the opposite. My grandfather-a humble auditor/ accountant bought stocks during the depression and they grew in value multiple fold into the millions untill sold in the 1980s.

failed_trad3r · May 22, 2011

Quote from thegreatgazby:

Ahhh yes the wealth effect.. well unless you bought before the great crash in 1929.. most stocks didn't get back to the price paid for them until the 1950's

Like everything else.. you still need to watch your timing, even with the "wealth effect"

The wealth effect is both upwards as downwards. Longer terms can profit both ways from the wealth effect. However in history with the DOW going from 100 to 10000, it seems the upwards wealth effect is stronger than the downwards wealth effect. In any case, Buying at the top does not invalidate the thesis that daytraders profit barely or maybe none from the wealth effect.

I can't be certain, but I have a feeling the wealth effect explains trends.

Random.Capital · May 22, 2011

Quote from Dalmation:

My grandfather-a humble auditor/ accountant bought stocks during the depression and they grew in value multiple fold into the millions untill sold in the 1980s.

That's not "wealth effect" that's lucking out and buying at the bottom.

Ie, market timing.

In the long run, equity markets cannot return more than the risk-free rate. There is no "wealth effect". You either time the market intentionally,or you get lucky.

HedgefunTrader2 · May 22, 2011

Dalmation seems confused.

Zr1Trader · May 22, 2011

I would like to see "Cheese" chime in on this one. He has talked zero sum before but not in too much detail. From what I understand Futures are no doubt a zero sum game.

"In game theory and economic theory, a zero-sum game is a mathematical representation of a situation in which a participant's gain or loss is exactly balanced by the losses or gains of the other participant(s."

Farmer wants to lock in his price so he sells short wheat at $806.25.

I buy the contracts that the farmer just sold at $806.25.

Price goes up I make money, Farmer loses equal amount of "potential" money because he could have sold the wheat at a higher price. Instead he is locked in at $806.25

Price goes down, Farmer made a good bet and has his price locked in at $806.25 even though prices may now be $600. I on the other hand lost in this transaction the equal amount that the farmer gained.

Makes sense to me....

traderlux · May 22, 2011

Quote from HedgefunTrader2:

Dalmation seems confused.

he is probably upset because gramps sold for millions in the 80's, when gramps could have given them to dal, and dal could now sell for billions.

dal's grand kids are the ones who will really be upset, because they could be selling for trillions.

sle · May 22, 2011

Quote from Martinghoul:
As I said, if you include all the assets in the equation, it all adds up. It has to, by definition. The whole system has a balance sheet, so if assets were destroyed, a liability (shareholder equity) has to decrease.

Since real assets have the ability to be created and destroyed, the system is not stationary. A caveman that invented and produced a stone ax created economic value that might have been spread through the system, for example. The smartish conclusion is that the majority of investors will be winners, while the majority of speculators will be losers (because of the frictions inherent in the system).

So, while the economy and the markets is not a zero sum game, but speculation as an activity certainly is. That is, of course, unless it creates something of value - e.g. providers of liquidity in general do get paid of their risk taking activity.