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Gambler or Speculator?

  • #1
  • First Post: Edited Feb 9, 2009 12:45pm Feb 8, 2009 6:21am | Edited Feb 9, 2009 12:45pm
An Extract from Trading and Exchanges by Larry Harris-

Many - Probably most - traders who gamble in financial markets are unaware that they are gambling. Most beleive that they are pursuing other objectives. Traders need great discipline to discriminate betetween prudent risk taking behaviour and gambeling. Many traders traders who beleive they are speculating actually are gambling because they do not recognise that the information upon which they trade does not give them any advantage over other traders. Traders who gamble can sometimes be identified by their enthusiasm for trading and by their inability to clearly articulate their reasons for trading.
The notion that some traders are gamblers is controversial. Many regulators fear the damage that they can do to themselves and to the markets. They especially worry that gamblers may make the markets more volatile.
Gambling is not necessarily bad for financial markets. Since gamblers are uninformed traders, they tend to lose to well-informed traders. When many gamblers are present, informed trading can be quite profitable.
Like all other utilitarian traders , gamblers like to trade in liquid markets. The low transaction costs in such markets allow them to aquire and divest their possitions cheaply.
Gamblers also like to trade volatile instruments because they typically provide the greatest potential for exciting entertainment. The great popularity of public lotteries suggests that some gamblers like bets which win big with low probability and lose small with high probability.
Living the adventure in my head.
  • #2
  • Feb 8, 2009 7:55am Feb 8, 2009 7:55am
Hey Leon, did You finally buy the book?
"I say high, You say low, You say why, and I say I don't know..."
  • #3
  • Feb 8, 2009 8:06am Feb 8, 2009 8:06am
Quoting Ricardo.
Hey Leon, did You finally buy the book?
Yep,

I found a Used, but great condition (before I spilt some tea on it) copy. £30 on amazon, great deal. I may need to go through the book again though, takes time for things to stick. Then Ill either highlight or make coppies of relevant info that I need to put more thought in to.

Im very happy with it.
Living the adventure in my head.
  • #4
  • Feb 8, 2009 8:19am Feb 8, 2009 8:19am
Quoting Leonlorenzo
I spilt some tea on it
You officially broke it in! LOL


I'll bet (pun intended) that the more you absorb the book (like the book absorbed your tea), the further you move along this progression:
Gambler > Speculator > Pro Trader.

I'm buying that damn book now! I can feel my head hurting already. LOL!

All the best Leon!
Brent
  • #5
  • Feb 8, 2009 8:33am Feb 8, 2009 8:33am
Quoting FXSurfer
You officially broke it in! LOL


I'll bet (pun intended) that the more you absorb the book (like the book absorbed your tea), the further you move along this progression:
Gambler > Speculator > Pro Trader.

I'm buying that damn book now! I can feel my head hurting already. LOL!

All the best Leon!
Brent
A lot of the info is very basic, but not basic in the sense of 'stuff I already knew'. Basic in the sense of, 'stuff I should have known before I even made my first trade'.

I have never expected a book to make me profitable, original idea's are what make money. But the Understanding of how the markets really work is a step in the right direction to formulating a plan that really means something.
Living the adventure in my head.
  • #6
  • Feb 8, 2009 9:17am Feb 8, 2009 9:17am
Most things in life is a gamble.

You open a garage to repair cars - you put in your money.
You could lose almost everything !!!

You put in money to date a girl - no gaurantee you will get her to be your wife !!

In everything, have a good stop loss - manage it well.

If the relationship is not fruitful, stop persuing it.
If the garage don't bring in customers, sell it before the bankruptcy authorities arrive.
  • #7
  • Feb 8, 2009 10:43am Feb 8, 2009 10:43am
Quoting Leonlorenzo
Basic in the sense of, 'stuff I should have known before I even made my first trade'.
My guess is that trading with an almost total lack of knowledge about how
the markets work is a huge factor in the 95% crash-and-burn statistic
that we all hear about.

Q: How many people learn it BEFORE they put on their first trade?
A: No way it can even be .1%.
  • #8
  • Feb 8, 2009 6:09pm Feb 8, 2009 6:09pm
Glad to see you have enjoyed that book Leon. Even though it is a little dated it is one of my favorites and I would recommend it to anyone. You seem to be maturing as a trader of late, am I correct? I just spotted your journal and it seems you are getting some healthy screen time; you are educating yourself on some of the basics, and are discovering the realities of the word "professional" in regards to trading (based on your comment about how different this learning process is in another thread). That is awesome. I started posting in this forum for some very different reasons but find myself almost nostalgic as I identify with younger traders (trading age mind you) who are going through what I have gone through myself. You seem to have potential.

Anyway, keep at it. You might make breakthroughs in system development and profit returns; you may have great leaps of understanding as you discover the intricacies of financial markets, you may even fully realize an edge or two; but your spot on the learning curve only advances when your textbook education turns into real life experience. Experts often stand out in their ability to discern prime market conditions for their given system. To do that, your mind must be conditioned to be able to filter and interpret the relevant information that is affecting the market as you take on a trade.

What is your plan now, Leon?
Headline: USD drops due to news of USD dropping!
  • #9
  • Feb 9, 2009 7:46am Feb 9, 2009 7:46am
Quoting Gaston
Glad to see you have enjoyed that book Leon. Even though it is a little dated it is one of my favorites and I would recommend it to anyone. You seem to be maturing as a trader of late, am I correct? I just spotted your journal and it seems you are getting some healthy screen time; you are educating yourself on some of the basics, and are discovering the realities of the word "professional" in regards to trading (based on your comment about how different this learning process is in another thread). That is awesome. I started posting in this forum...
Yes Gaston, I feel like im maturing in general..... and I certainly hope that I have some potential, lol.

Applied knowledge is the only way forward, so I guess my plan is to keep learning and keep brain-storming on how to apply the things I learn to my trading. Writing down my idea's and then trying to dissprove them as valid trading strategies is what I will be doing next.

If you dont mind me asking, How did you stumble in to trading? And have you always been a private trader?

Good day,

Leon
Living the adventure in my head.
  • #10
  • Feb 9, 2009 12:57pm Feb 9, 2009 12:57pm
Quoting Leonlorenzo
An Extract from Trading and Exchanges by Larry Harris-

Many - Probably most - traders who gamble in financial markets are unaware that they are gambling. Most beleive that they are pursuing other objectives. Traders need great discipline to discriminate betetween prudent risk taking behaviour and gambeling. Many traders traders who beleive they are speculating actually are gambling because they do not recognise that the information upon which they trade does not give them any advantage over other traders. Traders who gamble can sometimes be identified...
A thought Ive had....

So many people in the forums online have a very hard time keeping in the black when trading Demo and micro accounts. But when trading like this there is always a counterparty Imaginary(demo) or your broker ((micro) who expects you to lose anyway).

Chosing good entry and exit points is only half of the battle, the more worrying part is trying to find someone that will take the other side of the trade when you are trading substantial money.

Looking from this perspective, It should be easy to trade profitably in demo. Whats going on?

This should be more worrying for the short timeframe momentum traders.
Living the adventure in my head.
  • #11
  • Feb 11, 2009 1:41pm Feb 11, 2009 1:41pm
Quoting Leonlorenzo
Yes Gaston, I feel like im maturing in general..... and I certainly hope that I have some potential, lol.

Applied knowledge is the only way forward, so I guess my plan is to keep learning and keep brain-storming on how to apply the things I learn to my trading. Writing down my idea's and then trying to dissprove them as valid trading strategies is what I will be doing next.

If you dont mind me asking, How did you stumble in to trading? And have you always been a private trader?

Good day,

Leon
I have always had an interest in financial markets. Even as a young boy I remember having conversations with my dad about how stocks worked. I was very young at the time but just the mere concept of profiting from price fluctuation was mysteriously intriguing. I wasn’t just interested in making money though, because at that age what is money anyway. I just found the subject alone extremely confusing, and therefore fascinating. This was important.

However, it wasn’t until I was in college with a wife a kids that I found myself looking into alternative ways to support my family. I was browsing a different forum one day when someone was talking about day trading stocks. I did a quick search of the term “day trader”, fell in love with the concept, and began my life long pursuit of financial success.

The first time I opened up a chart I saw what everybody sees with virgin eyes: randomness. But the more I traded and the deeper I learned the more sense was made of the markets. My passion for learning drove me to great lengths to find real answers to the mysteries of the market. But don’t get me wrong, I had my period of cheap indicator-ridden trading like the rest of us internet fish caught by the hook of badvertising. This phase was naturally temporary for me. Such false systems expectedly provide only cheap answers that are obvious to anyone with a brain. Success came shortly after this realization. I needed real answers, and I was good at asking the right questions.

I have never worked for a bank or any other financial institution either. This should provide hope to some because all of my questions have been answered by my own research. There are very few “secrets” to trading. You might have to dig a little, but all the information needed to be successful is at your fingertips, you just need to have the brains and balls to piece together the puzzle.
Headline: USD drops due to news of USD dropping!
  • #12
  • Feb 11, 2009 2:56pm Feb 11, 2009 2:56pm
Quoting highway
Most things in life is a gamble.

You open a garage to repair cars - you put in your money.
You could lose almost everything !!!

You put in money to date a girl - no gaurantee you will get her to be your wife !!

In everything, have a good stop loss - manage it well.

If the relationship is not fruitful, stop persuing it.
If the garage don't bring in customers, sell it before the bankruptcy authorities arrive.
I agree - Everything is a gamble. You just need to learn how to increase your odds of success. For instance, you brush your teeth before going on a date. You have increased your odds of getting a kiss. Flip it to trading - you use some type of indicators (I hope) when deciding to go long/short. Again, you increased your odds. Still a gamble...

J
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  • #13
  • Feb 11, 2009 3:56pm Feb 11, 2009 3:56pm
I recommend any trader here who is serious about trading to read this book. It wont help you trade specifically but will help you with the market microstructure of all markets, market participants and they types of traders in the market.

I believe this knowledge is important for a trader and would reduce the many questions on this board about people saying asking why some spreads and quotes are different across brokers.

Also it will clear alot about ECN (electronic communication market) as I dont believe this is a true interbank market as some people call it here.
The only interbank market here is through reuters 3000 extra.

But I think it would be safe to assume that some traders on here are gamblers without recognising it and will keep trading even though they are not making money, possibly the thrill of trading attracts them? However, it has to be unstood that markets are are a zero sum game, (negative sum game if you consider broker spreads) and gamblers, neophytes are needed for this market to survive.
  • #14
  • Feb 11, 2009 4:10pm Feb 11, 2009 4:10pm
Quoting kokolaymm
Also it will clear alot about ECN (electronic communication market) as I dont believe this is a true interbank market as some people call it here.
The only interbank market here is through reuters 3000 extra.
Reuters (and EBS) simply consolidates bid/ask prices from the participating banks on the interbank market. Reuters is not in itself a market, just a service for the market. The banks are still trading with each other on a daily basis, therefore the term "interbank" is applied to this level of exchange. A bank can trade with another bank without using the Reuters service as well and its still considered interbank.
Headline: USD drops due to news of USD dropping!
  • #15
  • Feb 11, 2009 4:24pm Feb 11, 2009 4:24pm
Quoting kokolaymm
However, it has to be unstood that markets are are a zero sum game, (negative sum game if you consider broker spreads) and gamblers, neophytes are needed for this market to survive.
This reminds me of something else I have been thinking about and wanted to discuss.

Due to the purpose of this market, there is chance that the psycology of market moves is much less important, since business are just making trades to lock in prices... they are unlikely to care what is happening on an Intraday chart. This would presumably make technical trading rather difficult.

On the other hand, the uninformed descisions(and trades) being made to lock in prices should be offering a great deal of liquidity to those traders with an edge.

any thoughts?
Living the adventure in my head.
  • #16
  • Feb 11, 2009 4:43pm Feb 11, 2009 4:43pm
Quoting highway
Most things in life is a gamble.

You open a garage to repair cars - you put in your money.
You could lose almost everything !!!

You put in money to date a girl - no gaurantee you will get her to be your wife !!

In everything, have a good stop loss - manage it well.

If the relationship is not fruitful, stop persuing it.
If the garage don't bring in customers, sell it before the bankruptcy authorities arrive.
Agreed 110%

If we're comparing this to the casino or track (i.e. real gambling), forex/trading wins hands down.

50:50 chance to profit from forex/stocks from a simple coin toss. Add your edge, method, system (whatever you want to call it) and the odds increase in your favour.

Show me a casino or track that provides this sort of opportunity...
  • #17
  • Feb 11, 2009 4:46pm Feb 11, 2009 4:46pm
Quoting Gaston
There are very few “secrets” to trading. You might have to dig a little, but all the information needed to be successful is at your fingertips, you just need to have the brains and balls to piece together the puzzle.
Thanks for shairing your trading History.

I dont think anyone could make a career out of this unless they had a great deal of interest in it, rather than just the money that can be made.
Living the adventure in my head.
  • #18
  • Feb 11, 2009 8:28pm Feb 11, 2009 8:28pm
Quoting Leonlorenzo

Due to the purpose of this market, there is chance that the psycology of market moves is much less important, since business are just making trades to lock in prices... they are unlikely to care what is happening on an Intraday chart. This would presumably make technical trading rather difficult.
This point/thought troubles me quite a bit, the 'Psycology' aspect is all that I can think to construct trading theories from. Any order antisipation strategy requires the beleif that others are trading technically, doesnt it?

The method I was using in my journal was based simply buying/selling at a disscounted price behind many levels of SorR, Not very technical in my eyes. Entries could have been made at random possibly as long as I was trading in the trend direction.
Living the adventure in my head.
  • #19
  • Feb 11, 2009 8:56pm Feb 11, 2009 8:56pm
Quoting nanningbob
....Forex is designed primarily for businesses, banks, and governments to exchange currencies in very large amounts, it does not behave itself in a consistent matter. At any time or place someone, bank, govt., business can exchange a huge amount of currency and it will have nothing to do with Fundamentals or Indicators or any combination of both. Every system ever developed can be disrupted by these exchanges and thereby ruining any strategy....
Quoting nanningbob
....I concluded that you can study to your hearts content everything about Forex trading you can find but when GM cashes a billion dollar check because it sold county X trucks no system can cover these events.

We just have to live with this fact...

Trade your charts/fundies/quant/whatever and use sound MM. Accept the fact that you will never be able to derive a 100% perfect method, system or edge.

Gambler or Speculator? Take your pick, whatever makes you sleep better at night.

It is not the sort of gambling you do at the track or casino, the odds here can be pushed much further into your favour.
  • #20
  • Feb 11, 2009 9:12pm Feb 11, 2009 9:12pm
Quoting NuckingFuts
We just have to live with this fact...

Trade your charts/fundies/quant/whatever and use sound MM. Accept the fact that you will never be able to derive a 100% perfect method, system or edge.

Gambler or Speculator? Take your pick, whatever makes you sleep better at night.

It is not the sort of gambling you do at the track or casino, the odds here can be pushed much further into your favour.
It seems ive confused people by going off on a tangent. Im not debating anything, just rambling about different things regarding trading.

I originaly posted the extract from T&E to make people think a little, and as a talking point.

The posts that you quoted are working on the assumption that FOREX is a speculative market untill a large order comes In from a business and disrupts the speculators. But couldnt it also be possible that 90% of what we see is exactly that, business transactions that had to be made regardless of what was happening on your intraday chart?
Living the adventure in my head.
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