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Poll: Is successful trading more dependent on skill than luck?

  • #21
  • May 11, 2007 5:38pm May 11, 2007 5:38pm
Quoting aparsai
I am a believer in skill. Luck is for gambling not trading.
Perhaps it’s because I haven’t read enough newspapers, but I’ve never heard of a casino going broke. Does a casino gamble?

Here’s why casinos are “guaranteed” to profit:

1) Statistical edge: they only offer games with a positive expectancy (in their own favor). [OK, it’s possible for the punter to count cards in Blackjack, but with the countermeasures casinos take nowadays, it’s extremely difficult to prosper].

2) Turnover: the more transactions per hour, the greater the opportunity for this edge to prevail.

3) Money management: maximum permitted bet size is trivial compared to the casino’s capital reserves.

4) Discipline: all games operate unswervingly to fixed rules.

If I play in a casino, I’m “gambling”. Why? Because I’m playing for only a short period of time, and the casino’s edge is sufficiently small, that I might strike it “lucky” for a while. We’re dealing with probabilities, not certainties, and the lower the number of trials, the more “random” the overall outcome.

So is the casino (who is playing the same game, against me) gambling? If one wants to be pedantic, yes. It’s possible that the casino could lose (for example) a trillion plays in succession, but the probability is almost infinitesimally small.

Even though markets are driven by emotion, and hence probabilities of price movements can’t be predicted with mathematical accuracy, I think the parallels with trading are valid enough. Anybody can get lucky in the short term (read their testimonials on system vendors’ sites! ). But to succeed consistently, year in and year out, one must have the “fantastic four”: edge, turnover, MM and discipline. The greater the edge, the lower the turnover needed for it to prevail, and the less conservative one’s position sizing needs to be. Transaction costs make trading a negative sum game.

Some top traders trade breakouts. As they will acknowledge, not every breakout (entry + exit) leads to a winning trade. Supposing the market conditions (price movement or pattern) that caused a loss was to occur 100 times in succession. At 1% risk per trade, that would effectively wipe out even the best trader (OK, the law of diminishing returns would mean that his/her equity will never reach absolute zero, but you get the idea). In a sense then, the trader is gambling on the fact that those same (or similar) conditions won't “cluster” often enough to cause irretrievable drawdown. Or, put another way, the trader is counting on his/her edge to prevail, and frequently enough to justify the magnitude of his position size.

So what is “gambling”? If you have 10% chance of losing your bankroll in (for example) 100 trials?
1%?
0.01%?
0.000000000000001%?

Therein lies the answer, and I would suggest that, at least to some extent, it is a subjective one.

David
  • #22
  • May 11, 2007 5:58pm May 11, 2007 5:58pm
If one think they will make a living on luck in any arena, they will quickly learn a skill. if you don't know when to enter and exit a trade you will be wiped out shortly. Trading is for traders. Lotto is for the lucky...
A. Finesse Williams Making Millions One Pip At A Time!
  • #23
  • May 11, 2007 6:09pm May 11, 2007 6:09pm
Hanover, entries are just as important as exits. The key is knowing s/r levels, figures, and the average range of a particular currency. News aside, you place your trade with the expected ertry and exit. Don't try and ride the trend. Take what you can get and get out. Being greedy will brake you. So trade to get x amount of pips on that trade and come back for more when you see a set up for more on the time frame (larger) you are using to make that trade. Be mechanical and you will get rich.


Quoting hanover
Being in profit after 10 trades is luck (even I’ve achieved that!); remaining in profit after 1,000 trades means that you have somehow established a proven edge.

Almost everybody says that exits more important than entries, but nobody has ever been able to explain why.

David
A. Finesse Williams Making Millions One Pip At A Time!
  • #24
  • May 11, 2007 7:30pm May 11, 2007 7:30pm
I voted 50-50%

My skill will allow me 50% chance of picking the right direction. The rest is up to luck. If you think you can be 51% right every time with "skill," then you must think you're god...
  • #25
  • May 11, 2007 8:21pm May 11, 2007 8:21pm
luck is a complex subconscious progress of the brain ...... ( if you realize how it works, it is called skill )
now since you have to work all of it then 20%+80% = 100% hard work....

i learned to give room to that 80% to work while working with 20% skill.......
there is margin lv to ease the calculating :
  • #26
  • May 11, 2007 8:36pm May 11, 2007 8:36pm
Well, my ea's that I run tell me its skill; but you sure take an educational mental beating getting to that point. Markets, timeframes, indicator setups all vary. never thought a chart could be so fn hard!
  • #27
  • May 11, 2007 9:09pm May 11, 2007 9:09pm
Quoting aswilled
Hanover, entries are just as important as exits.
Exactly. Most people don't even bother with exit signals. And trailing stops are not exit signals; they're an integral part of an exit strategy... your exit signal should get you out of the market before the trailing stop order hits. Stop orders are there for disaster situations, such as the market jumping in the opposite direction because the market suddenly has got a bug up its butt. Specialists and brokers love it when newbie traders only use stops as their exits, because they can be so easily taken out for a quick profit on their side... it's the entire reason why stop hunting exists.

One of the trader "bibles" out there is The Elements of Successful Trading by Robert Rotella, which was written in the early-90's by a commodities floor traded turn CTA. It is a 700 page tome divided into three sections: analysis, money management and psychology.

Anyway, the book has an excellent definition of entry and exit signals with respect to risk. An entry point is where you determine that risk is low and reward is high. An exit point is where you determine that risk is high and reward is low or uncertain. The book also says the reason why exits are at least as important as entries is because ultimately, the exit determines how much money you gain or lose. All entry does is tell you that this might be a good time to get in the market going in a certain direction.

Another thing to consider is time as risk. Quite a few professional traders get out when the market has been going sideways after they enter or after they've gotten a decent amount of unrealized profit. This is because the further you go into the future, the more uncertain risk/reward is. It's also the reason why options carry a time value that decays the closer it is to expiration date.
  • #28
  • May 11, 2007 9:31pm May 11, 2007 9:31pm
I'd say, that like most things, it's luck first, then skill.

I used to play pool quite a bit, and when I first started playing, it would be a 1 in 100 chance that I could make a bank shot (bounce the ball off a rail and into a pocket). When I started losing interest in the game, it got that chance down to something like 1 in 4. Any idiot can bounce a ball off of three rails and into a pocket... if they're lucky; but a professional billiards player can make that shot about half the time.

When I was taking martial arts, my instructor said the most dangerous person in the dojo is not the sensei nor the black belts: it is the white belt who's been there for a couple of months. The reason why is because he was taught a technique that could potentially kill someone if he does it properly. However, he has no control over on how well he applies the technique... unlike the black belts. So, out of stupid luck he can pull off the perfect technique, break a limb/kill someone, and not even realize it... whereas the black belt would only do so when he wants to.
  • #29
  • May 11, 2007 9:42pm May 11, 2007 9:42pm
there is no such thing as a lucky long term trader. there are only a handful of long term traders period. you can give 100 percent of all traders an entry technique that wins 80 percent of the time and 80 percent of them will blow thier account within a year. most of the other 20 percent will be gone within two.

jim
  • #30
  • May 11, 2007 11:20pm May 11, 2007 11:20pm
Trade in probabilities not luck, and you will thrive.
EllisEdi Moving on to my next trade ...
  • #31
  • May 11, 2007 11:57pm May 11, 2007 11:57pm
Quoting james16
there is no such thing as a lucky long term trader. there are only a handful of long term traders period. you can give 100 percent of all traders an entry technique that wins 80 percent of the time and 80 percent of them will blow thier account within a year. most of the other 20 percent will be gone within two.

jim
Uhhh.. what did I want to say again?...
Oh! I know...
DITTO.

But then again Jim, Remember way back when; when it seemed like all we had to do was figure this thing out and "We were on Easy Street."
I think when you and I did it, there were no "Rapid Education Forums" such as this and we were resolved to the fact that this {job at hand} was going to take a while.

Paradox:
FF is a rapid learning center;
To Increase rapidity, read only 10% of FF.
WRONG yeah yeah. Bill's shoutin' again. But, for you guys who don't get it yet, You have to understand that those of us you consider successfull had our cumulative arses kicked numerous times while paying our dues.
I understand that you may want to avoid such occurrecies but "That's Life"

Aspire to Boredom.
Sounds like your everyday job. I do it & I make money. You get to the point of thinking, Boy I would occassionaly like a challenge.

Fortunately, in Fx,[Trading in general] you will occasionally get more than a challenge. You will get your arse ripped wide open And, just for good measure, It will Rip You a New one.

{Thought...
Scott, Why don't you explain to the members here what it takes to be a good Automotive Store.}
  • #32
  • May 12, 2007 12:24am May 12, 2007 12:24am
well said B as usual. i worry sometimes that i will depress newbies when i make statements like that. at one time i was a newbie and it sure as hell would have depressed me but that was long before the internet. i got to experience real life trading depression for 8 hellish years. now i look back and think... did i really think my pot of gold was sitting there waiting for me after 3 months on demo? yeah i guess i did.

jim

Quoting Bemac
Uhhh.. what did I want to say again?...
Oh! I know...
DITTO.

But then again Jim, Remember way back when; when it seemed like all we had to do was figure this thing out and "We were on Easy Street."
I think when you and I did it, there were no "Rapid Education Forums" such as this and we were resolved to the fact that this {job at hand} was going to take a while.

Paradox:
FF is a rapid learning center;
To Increase rapidity, read only 10% of FF.
WRONG yeah yeah. Bill's shoutin' again. But, for you guys who don't get it yet, You have to understand that those of us you consider successfull had our cumulative arses kicked numerous times while paying our dues.
I understand that you may want to avoid such occurrecies but "That's Life"

Aspire to Boredom.
Sounds like your everyday job. I do it & I make money. You get to the point of thinking, Boy I would occassionaly like a challenge.

Fortunately, in Fx,[Trading in general] you will occasionally get more than a challenge. You will get your arse ripped wide open And, just for good measure, It will Rip You a New one.

{Thought...
Scott, Why don't you explain to the members here what it takes to be a good Automotive Store.}
  • #33
  • May 12, 2007 12:42am May 12, 2007 12:42am
Quoting james16
i worry sometimes that i will depress newbies when i make statements like that. ..
jim
Of course you are correct James.
I admitedly {more than} occasionally get a little hot wired. But in reality, my objective is to prevent the scenario of "I can afford to lose 5K".

I 100% undestand that said 5K is a portion of funds we can share and....
But, in reality, I would rather take it from strangers.

Crude but true.
If I know more than you, then I should take your money
  • #34
  • May 12, 2007 7:28am May 12, 2007 7:28am
If hard work and discipline is what you call "luck", then yes Luck > Skills.

I don't believe in talent or skills when it comes to trading. The problem is that most of the people don't understand how much hard work you gotta pour in in order to become successful.
  • #35
  • May 12, 2007 10:07pm May 12, 2007 10:07pm
Quoting Bemac
Paradox:
FF is a rapid learning center;
To Increase rapidity, read only 10% of FF.
But the trick is to know which 10% to read!!!!

There are posts that recommend mechanical systems; others discretionary ones. There are dozens of different methods outlined here, and all have their advocates: Vegas, James16, PipBoxer, Tlatomi, Fozzy, BAT, Bunnygirl, Steinitz, Mouteki, SDRC, Sidus, Bagovino, EJ_4H, Boxing stochastics, TEB, Pabloski, BB on steroids, ...... and lots more (sorry to those whose systems I forgot to mention!).

Some people say the "trend is your friend", others (like Kathy Lien) apparently believe in "reversion to the mean". There are some who use trailing stops, others target profits. Some who use technical indicators, some who prefer price action. There are folk who advocate scaling up into a position, others scaling down. There are guys who use pure TA, others economic indicators, still others trade the news. Some scalp, others trade intraday, some longer term. Opinion is divided as to whether daily pivots are useful or not. Then there are some who believe exit is everything, others say that neither entry nor exit really matter, because it's all about psychology........

There are also posts by pro traders who say that most of the material written here amounts to the "blind leading the blind".........

Well, heaven help any newbie who's trying to make sense of all this.

I came to FF with 5 years experience at studying TA, and testing different equity/derivative trading systems. It's taken me a further 9 months of pretty much full-time research, but I think I'm actually managing to sift the gold from the dross here. My demo account is starting to show some real profit! A big thanks to all those who've taken the time and trouble to answer my questions.

David
  • #36
  • May 12, 2007 10:16pm May 12, 2007 10:16pm
Quoting hanover
But the trick is to know which 10% to read!!!!

David
Hi David, Not sure that most of the members here will understand what "Dross" is, but I do.

Err... that would be the Dual Forum concept I expect.


I would just ask you to consider if you think Kathy has Never Traded With the Trend?
Of course she has. Depends on the weather. Bright or Gloomy or Overcast
  • #37
  • May 13, 2007 12:41am May 13, 2007 12:41am
Quoting Bemac
Depends on the weather. Bright or Gloomy or Overcast
Bemac, old chap, just when I'm hopefully starting to get a handle on things, you suggest I should trade according to the prevailing weather conditions?

Of course I haven't a clue how Kathy trades. I believe that she's regarded as a forex guru, writes a lot of articles, and along with her mate Boris sells trading methods and material on their advisor web site. My point is that it's very easy for newbies to take material they read here (and there are currently over 216,000 posts on the mainstream forum) out of context, or assume that what they're reading applies to every conceivable situation. When you get posts by folk saying something like "exit is everything" but not explaining why or how or in what situation, it's decidedly unhelpful.

Very often it seems that one already needs to be a knowledgeable trader just to understand - let alone apply - what one is reading, which of course is something of a catch-22. But only then is one truly able to get a feel for whether or not the poster knows what he's (or she's) talking about.

Of course it would be both unreasonable and unworkable for the moderators to apply any kind of proficiency-based censorship; besides, so much of trading is subjective, dependent on the individual, and hence a matter of perspective.

Having said all that, those who want to succeed badly enough will, no doubt, put in the time and the effort. The reward is exponential gains that lead to financial freedom. As has been said many times before, one trains for several years to become a doctor or a lawyer; why should the learning curve needed to master the markets be any easier?

Sorting the gold from the dross? Am I becoming old-fashioned in my rhetoric? For anybody not in the know, it means sorting the valuable material from the worthless junk.

Cheers
David
  • #38
  • Edited 12:59am May 13, 2007 12:44am | Edited 12:59am
I think luck is most important. see this girl she now is the most richest one in China because Chinese stock market bubble, almost same as bill gates. hehe, luck is key. Can you guess how old is she?
Attached Image
  • #39
  • May 13, 2007 8:19am May 13, 2007 8:19am
Quoting wshhmm
I think luck is most important. see this girl she now is the most richest one in China because Chinese stock market bubble, almost same as bill gates. hehe, luck is key. Can you guess how old is she?
23 year-old ? I guess that's not important. She's hot, that's for sure
  • #40
  • May 13, 2007 9:06am May 13, 2007 9:06am
Quoting wshhmm
I think luck is most important. see this girl she now is the most richest one in China because Chinese stock market bubble, almost same as bill gates. hehe, luck is key. Can you guess how old is she?
There was a story floating around here how one guy in Japan went from having a ~$13,300 account to something over $100 million account in eight years. Most of that fortune was made when he bought a stock that was accidentally quoted as 1 yen instead of 100 yen.
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