hi guys,
Can anyone tell me what's the differences btwn gambling and trading?
Can anyone tell me what's the differences btwn gambling and trading?
- Joined Mar 2004 | Status: Magic Man | 3,220 Posts
You can't calculate chance...only in BlackJack
Relax and be happy.
- Joined Jan 2005 | Status: Keep Learning | 1,180 Posts
Interesting... What about 9/11 and Katrina??? How many people has it affected??? Apparently FX thought otherwise...
Trading on the other hand has to do, if there is no one on the other side of a hedging trade, there won't be a hedge in the first place, and thus markets should be extremely illiquid...Even banks and large funds and money managers specualte in the FX market, thus taking the opposite position of a hedger who has no problem losing on the position, and sometimes might be happy to lose the hedge position, because this will benefit his business...
I politely disagree... Forex IS tweaked against you, and it is a FACT. Spread is against you, slippage is against you, occasional strong move is against you... Leverage is another reason why the market has to play against you.
95%+ of people lose in order to make FX exist (and brokers paid).
There is a difference between the rules of the game which everyone know and should take into consideration before actually being engaged in the game, and other hidden practices that can be made to make the percentage of winners a minimum...In trading, spread, slippage, strong moves, leverage and all other things are the rules of the game...If you accept them, then go ahead, play the game, if you don't accept them, just quit...
Why FX is not tweaked against traders..?? I will tell you why...Because no body can control this market to tweak it to his favor...Everyone is just a part of the whole big system, and really no one gives a shit who is on the other side of the trade...No body controls the market over the long term, on the short term, ya I might agree that the FX can be a little bit tweaked towards the favor of brokers and market makers, yet again, this is one of the rules of the game...Everyone know that the market is too big to be controlled by one single trader, but they know for sure that it can be controlled over the short term, or else, why do most traders avoid the asian session for example?? Because they know the volume is thin there and the possibility of manipulation is higher, so they simply avoid it, but you have 2 other sessions where the possibility of manipulation is at minimum....That's again one of the rules you get to know when you start trading the market, and many traders even know it from the very beginning...
In gambling, when you play a slot machine, you can calculate probabilities, but what you don't know, is that the machine itself is programmed to even reduce those probabilities below the random level...That's what people are not convinced of, and most of them won't even believe it...The roulette wheel is the same, it can be adjusted with many many methods to go against most gamblers everytime, and thus everyone loses and the bank wins almost in 97% of the time..
In gambling, every game you play has a random probability which can be calculated, if you played any game for a long time and wrote down the results and the outcomes, you will find that the results are very much beyond the random, it's being engineered to produce results against you all the time, no matter your position size is, no matter who you are, no matter when you play...
Take this as an example, a slot machine having 5 different shapes...What is the probability that you get 3 straight?? You have 125 different cases that can get out, in which only 5 of them can be 3 straights...So that's a 4% probability. 5 out of 125...Great...This means that for for every 100 times you play, eventually, you should get 3 straights 4 times, and 96 times mixed...If you actually went infront a slot machine like that, and sampled 1000 tries with a constant position size of 10 cents, which is just $100, and wrote down the results, you will find that you will find that this percentage is completely wrong, and that the real percent to get a 3 straights will be less than 1% in most of the cases, so out of the 1000 tries, you will only get 3 straights 10 times only...And since you are going to get only 1 straight out of every 100 tries, it's ok with me, as the machine engineer to give you 50 times your bet for each one, and more over, if you are betting with more than a certain amount, I will let the machine run in another mode which will even reduce this to 0.5%, so that you get only 3 straights just 1 time out of every 200 tries and I will increase your payoff to 100 times, just to let you feel more excited...Such a thing is not a rule of the game, because this is not a fixed rule, and people don't know it...What I expect to see is that I have a 4% probability to get 3 straights based on random, but the machine isn't working randomly....
See what's the great difference between the slot machine and the markets....The markets don't work as a slot machine, they might have a little tweak in the short term, but for sure they are not engineered over the long term, you can't engineer a trend like the one of the recent USD/JPY and sustain it for over 3 months, this simply can't work out even if you have the wealth of the top 10 on the forbes combined...
And why does almost every book published on trading is 99% carbon copy of the other??? I have read DOZENS of books, articles, etc on trading. I have heard many lectures... Yet they all seem to be rehash and repeat of each other with the only difference is the style they are presented in...
Books that don't tell the same things as others are "Market Wizards" and "Trade Your Way To Financial Freedom"...Those 2 books are remarkeable...They are telling everyone what you need to know to correctly make it through in this type of business, they are not telling how, you have to discover yourself, because everyone has his own way of doing it, you can't be a grand master in chess unless you have your own unique strategies and methods...
The chess board is never just pieces alone, it's a complete strategy, attack, defense, maneuver, psychology, and many other things that you have to consider to consitently win and make it...It doesn't make you a great player to know how pieces can move on the board, everyone knows how to move pieces the correct way, it doesn't make you successful to implement a strategy that is not right to be used with your opponent or is not right for you, but it makes you successful to make innovative moves with harmony between your pieces and in context with the whole situation...It doesn't make you successful to ignore your strengths and weakneses, if you master playing the whole game with your queen alive, then you should do everything possible throughout the game to keep the queen alive, or else, you know you are in big trouble...
And beleive me, you cannot control your risk.... I have backtested many strategies on TICK BY TICK basis and there were times when price has crashed 100-200+ pips and rather than having lets say 10 sl (I played with many variables), it was full 200.
I also tested indicators... Funny thing that they failed BADLY, even if I reversed the entries....
Risk reward ratios also do not work well....
Take for example, the Alba system which is being discussed over the Journal Factory Forum...It trades only during the US session, that's a time factor that should be taken into consideration...Also trades are not allowed before major news reports, so you might find that the system gave an actual real signal, but not taken, because a major economic report was on the way, this can't be factored into the tick by tick backtesting unless you either have a software which contains historic economic reports and can take them into consideration, or you do the backtesting manually, which I assume is not logical...
Events such as terrorist attacks, wars, assasination and all such events are totally random, and remember that they can work with your position or against you if they really affect the pair you are testing, so over the long run, they will probably cancel out each other, you will lose 200 pips in just 1 second on your order because of a major event, and on another occassion you will gain 200 pips in just 1 second for another major event..And mostly, I have noticed that major events like 9/11, London bombings and so on usually in 70% of the times work in the direction of the working trend...For example, the trend of the GBP/USD was down before the London attacks, so you would have probably been on the short side rather than on the long side...
During the London bombings, I was actually infront of my PC watching the market, specifically watching the USD/CHF pair...I was astonished that the pair dropped 120 pips in less than a minute and kept moving lower for another 150 pips as far as I remember...I don't think that you will get a lot of slippage in such a case if you were on the wrong side of the market, if your sl was initially at 25 pips loss, worst case scenario that you will get another 25 pips in slippage, and you get out..That's double your initial risk, not bad for a market condition like that, and this is to be expected every year or 2...Slippage is a part of the game...However, if you were on the right side of the market, it would have been even better, while I was watching the market that day, I was actually about to short the pair as it looked like it was a great short from a technical point of view...I knew nothing about the attacks, and even I didn't know why the market moved that crazy way untill 3 hours later when I knew the news from Bloomberg...Although I didn't make the move, but I wasn't going to be long the market at that time anyway, as it was already extended and making a base after a good advance...
Just to tell you something as well, I came up with a very simple trading system before, and formulated it, and one of the members here volunteered to backtest it for me in TradeStation...It was tested for the EUR/USD pair for the data of the past 2 years, tick by tick, this was in mid 2005, so the testing data was mid-2003 to mid-2005...Guess what, the system is profitable for those 2 years, long trades and short trades both returned a profit and I have the test results as a proof for that
I can't remember more details about the results, but overall, the system was doing fine..So, there is actually profitable systems out there, everyone can find one to work with...When you say that you tested indicators and they fail, this is normal, even if you reverse the entries, this is still logical...Because the issue is not the entries, it's the exits that make the difference...The Turtles, represent a clear and convincing model for system trading...They used to trade 20 day breakouts...If you backtest 20 day breakouts, they will probably fail, even they employed a well defined, and logical techniques for setups, entries, exits and position sizing...Not every single trade was made using the same position size, and not every trade was exited at the breakeven point...These are things that are usually missing when you backtest systems, even if you do it tick by tick...
Sorry for the long post, but I just wanted to make my point of view as clear as possible...
Thanks,
Nader
Sorry my friend but I think I can't understand what you are trying to say?? I was comparing that gambling is not affected or affecting almost anything in the world except the people inside the business and of course the players themselves...But gambling has nothing to do with the imports/exports, has nothing to do with huge companies hedging positions, has nothing to do with the real outer world...
Trading on the other hand has to do, if there is no one on the other side of a hedging trade, there won't be a hedge in the first place, and thus markets should be extremely illiquid...
It's my turn to politely disagree..
There is a difference between the rules of the game which everyone know and should take into consideration before actually being engaged in the game, and other hidden practices that can be made to make the percentage of winners a minimum...In trading, spread, slippage, strong moves, leverage and all other things are the rules of the game...If you accept them, then go ahead, play the game, if you don't accept them, just quit...
Why FX is not tweaked against traders..?? I will tell you why...Because no body can control this market to tweak it to his favor...
Everyone is just a part of the whole big system, and really no one gives a shit who is on the other side of the trade...No body controls the market over the long term, on the short term, ya I might agree that the FX can be a little bit tweaked towards the favor of brokers and market makers, yet again, this is one of the rules of the game...Everyone know that the market is too big to be controlled by one single trader, but they know for sure that it can be controlled over the short term, or else, why do most traders avoid the asian session for example?? Because they know the volume is thin there and the possibility of manipulation is higher, so they simply avoid it, but you have 2 other sessions where the possibility of manipulation is at minimum....That's again one of the rules you get to know when you start trading the market, and many traders even know it from the very beginning...
In gambling, when you play a slot machine, you can calculate probabilities, but what you don't know, is that the machine itself is programmed to even reduce those probabilities below the random level...That's what people are not convinced of, and most of them won't even believe it...The roulette wheel is the same, it can be adjusted with many many methods to go against most gamblers everytime, and thus everyone loses and the bank wins almost in 97% of the time..
See what's the great difference between the slot machine and the markets....The markets don't work as a slot machine, they might have a little tweak in the short term, but for sure they are not engineered over the long term, you can't engineer a trend like the one of the recent USD/JPY and sustain it for over 3 months, this simply can't work out even if you have the wealth of the top 10 on the forbes combined...
Well, in my opinion, 99% of the books are the same because they tell traders and investors just what they want to know, not what is right for them to trade better...I also read a lot of books, they almost told the same things..I read about Technical Analysis, about 3 books, all were almost the same...I read about candlesticks, 1 book and a couple of websites, they all tell the same patterns and the same things, they are all telling what everyone wants to know, but this is not essentially correct...
The more people fail, the more money they will give away to the organizers.
Books that don't tell the same things as others are "Market Wizards" and "Trade Your Way To Financial Freedom"...Those 2 books are remarkeable...They are telling everyone what you need to know to correctly make it through in this type of business, they are not telling how, you have to discover yourself, because everyone has his own way of doing it, you can't be a grand master in chess unless you have your own unique strategies and methods...
The chess board is never just pieces alone, it's a complete strategy, attack, defense, maneuver, psychology, and many other things that you have to consider to consitently win and make it...It doesn't make you a great player to know how pieces can move on the board, everyone knows how to move pieces the correct way, it doesn't make you successful to implement a strategy that is not right to be used with your opponent or is not right for you, but it makes you successful to make innovative moves with harmony between your pieces and in context with the whole situation...It doesn't make you successful to ignore your strengths and weakneses, if you master playing the whole game with your queen alive, then you should do everything possible throughout the game to keep the queen alive, or else, you know you are in big trouble...
You can't win chess by not knowing your opponents, their goals, and the rules of the game. Simple observation of how pieces move is not enough... You need solid theory behind pieces (such as indicators, leverages, etc).
Backtesting systems have in my opinion a major drawback, they don't factor in news and economic reports, you actually can't factor them....For example, the 1 Hour tunnel trading system avoids opening positions on the NFP day...If a position is open, it's left as it is, no problem, but if there were no position, and we are on the NFP day, no positions are allowed...That's a very imporant setup for the system, because if it is ignored, it can destroy the whole performance of the system...
Just to tell you something as well, I came up with a very simple trading system before, and formulated it, and one of the members here volunteered to backtest it for me in TradeStation...It was tested for the EUR/USD pair for the data of the past 2 years, tick by tick, this was in mid 2005, so the testing data was mid-2003 to mid-2005...Guess what, the system is profitable for those 2 years, long trades and short trades both returned a profit and I have the test results as a proof for that
When you say that you tested indicators and they fail, this is normal, even if you reverse the entries, this is still logical...Because the issue is not the entries, it's the exits that make the difference...
Thanks,
Nader
You are welcomed!
- Joined Jan 2005 | Status: Keep Learning | 1,180 Posts
What I've tried to say is that sometimes currency exchange rates seem as connected to the world as casinos... (Sometimes, not always). I mean during 9/11 currencies didn't move what they should have... Katrina didn't send USD trending down (infact very soon USD started to grow like crazy). There have been times when interest rates caused the currency to move hard in the OTHER direction, etc etc.
The times you are referring to when currencies tend to move the other direction against interest rates is because of over extension in my opinion...For example, the USD with rates at 1.5% at the beginning of the year, can move sharply up because expectations are high that we are going to arrive at 4% by the year end, but with rates at 4.25% today, the USD can move sharply lower in reaction to any further rate hike, because we all know that the demand driver is coming to an end, and thus we don't want to own something which is having a declining demand factor...
Since 90+% of traders lose and their loses usually go to the brokers, I think that you will not find it difficult to know who wants to be on the other side (hey it is safe!!).
In disagreement we can arrive at the truth
I am sorry I was not eloquent enough. When I was talking about rules, I was more talking about actual price mechanics and the theory behind the forex. I was not talking about commonly know and tought characteristics. I was talking about the purpose and how it can be made workable in the forex market for those who made it so.
I assume that you are talking about the thread you started named "Forex as a system...Who benefits? What internal rules exist in FX?"...I agree with you that there must be some internal forces ruling the market and act as some rules of the game...One of these rules in my opinion is for sure the supply and demand for currencies...
Could you please justify this? When you are trading equities or products such as soybeans, you have tangiable thing. You can eat soybeans. You can use gold... Can you eat exchange rates? It is just a bunch of abstract numbers!!!
Those numbers my friend are what make the tangeable things really eatable or usable..
Since Forex is electronic market (not physical), since all brokers use about the same datafeed (it would be disadvantageous for them to stray too far off the price due to arbitrage opportunities), there is a central exchange rate. It doesn't take much to figure out that computer is programmed by people... It can be controled (it has too).
Spread in the forex....
Why does there have to be wealth???? Just tell the computer to quote lowering prices!!! Who is going to check how many flying ""virtual exchange rate contracts there is" ??!!!! Even top level economic statistics is falsified!!!
The more people fail, the more money they will give away to the organizers.
2 books out of HOW MANY TRADING BOOKS EVER PUBLISHED?
That is what I was asking in this post. The pieces moving are indicators... The chessboard is forex, the player on the other side is/are..., and what are the rules???!!!!
I was actually thinking about that too...
What about testing on out of sample data?
I agree 100% that exits are important. But what I was testing was that after an indicator gave a signal, how likely will it be to move 20,50 (and so on) pips in that direction vs in the opposite direction and triggering stop loss. The idea is that if the indicator is good, then it should signal before strong movement occurs (or atleast finishes).
Thanks,
Nader
