# The stock market is a gamble



## r34ztune (7 July 2008)

Hi all,
I don't think there is any secrets for a trader. 
To me it comes down to 1 thing *LUCK*
IMO any stock is a gamble
The reasons for my statements are as follows-
1. *Correction/crash predictions* 
Can anyone on this forum honestly say they predicted the last correction/crash 6 months ago? In many cases the signs are hard to read, with little to no time to react. I own property and the signs of a slowdown are much easier to read also you have more time to act.
2. *Disclosure*
How many of us have been burnt by so called "blue chip" shares like ABC,Centro,AMP ect in the past? The fact is by the time the bad news is released the directors have sold out and jumped ship, leaving the mum and dad investors out of pocket.
3. *Sector price movements*
It only takes 1 heavyweight stock for it's own reasons to fall, then the rest of the sector will take a hit.
4. *Speculation price rises*
Companies rise on speculation, without any earnings or evidence to support. 
FMG reported net loss of 68.43m last year and is a $10 dollar stock. Aoe trading @ 72.27 PE ratio....
5. *Good news/stock drop*
Companies can report good news and earnings guidance only to see the stock price drop. An example here - I own WOW which reported a jump of 20% EBITgrowth and is on track to meet full Yr guidance, it has dropped $5 in the last 2 weeks for no APPARENT reason!!

I tried to pick stocks on fundamentals like P.E ratios, EPS, LFL growth, meeting budgets ect but many times you fail, the s/market doesn't operate on evidence!!
IMHO the stockmarket operates on the following 1.Greed 2.Fear 3.Confidence
By the way I'm only an intermediate trader, and this is *my view only* and would like discussion to my above points.


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## explod (7 July 2008)

The stock market is an excellent trading arena and for the wary a very good place to make money.

The crash.  There have been many good economists who predicted the crash and the events unfolding.  Two I follow have warned of it since 2002.   

W0W is moving only with the rest of the market.  If you are a long term holder it will serve you ok, food will be the last thing people stop buying.

Read the "Imminnent and Servere Market correction" thread back 12 months and you will find plenty of ASF members aware of the current situation to unfold.


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## professor_frink (7 July 2008)

r34ztune said:


> Hi all,
> I don't think there is any secrets for a trader.
> To me it comes down to 1 thing *LUCK*
> IMO any stock is a gamble
> ...




Hi, if fundamentals aren't working for you, perhaps it's time to try something else


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## wayneL (7 July 2008)

r34ztune said:


> Hi all,
> I don't think there is any secrets for a trader.
> To me it comes down to 1 thing *LUCK*
> IMO any stock is a gamble
> ...




The roll of luck should never be underestimated in investing, sport, life etc. 

This does not make the stock market a gamble any more than sport or life.

I agree with the professor, try something else, you can succeed despite the factors you mention. Be the casino, not the punter.


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## ans25 (7 July 2008)

Like maybe looking at a graph and jumping on the wave and getting out when the wave peters out.


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## Trembling Hand (7 July 2008)

r34ztune said:


> Hi all,
> I don't think there is any secrets for a trader.
> To me it comes down to 1 thing *LUCK*
> IMO any stock is a gamble.




Then find a way to manage your luck 



r34ztune said:


> *Correction/crash predictions*
> Can anyone on this forum honestly say they predicted the last correction/crash 6 months ago? In many cases the signs are hard to read, with little to no time to react. I own property and the signs of a slowdown are much easier to read also you have more time to act.



 Many here did. Many more don't worry about predictions they just act on what the market gives them. Some times its running stocks sometimes it ain't. Either way they make sure they don't get taken the the cleaners.


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## Temjin (7 July 2008)

I would like to see how one can contribute LUCK to traders out there who have consistently made profit from trading the markets over many years and over many thousands of trades. From a statistical point of view, they probably have a much better chance of winning a gold lotto (and perhaps several times over) than if they were trading the market in a random fashion on pure luck. 

You already said it, the stock market operates on "1.Greed 2.Fear 3.Confidence". These are all human psychological factors. Without them, trends wouldn't exist in the first place. The so called "Market Efficient Theory" are only for pure arrogant theorists only and is useless in the real world. 

If these are your beliefs with the market, then you better change it if you really want to succeed in this field. My advice for you is to try to read some of the threads in this forum related to trading first. Make sure you bring an open mind to it.

By the way, what do you mean by being only an "intermediate" trader?


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## tech/a (7 July 2008)

> IMHO the stockmarket operates on the following 1.Greed 2.Fear 3.Confidence




Put perfectly.

Just trade that!
Many here do.


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## nioka (7 July 2008)

r34ztune said:


> Hi all,
> I don't think there is any secrets for a trader.
> To me it comes down to 1 thing *LUCK*
> I.




There is an element of luck,sure there is, but you make your own luck most of the times by making informed decisions. Whether by using t/a or f/a you guide your luck and if you are unlucky then you take action to reduce it's effect and if you are lucky you take action to maximise it"s effect. That makes the "luck" portion only a small part of the overall picture.


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## sardines (7 July 2008)

Depends on your timeframe - most people will agree that time in the markets is better than timing the markets so this idea of a 'gamble' becomes less apparent over the long-run. 

There's plenty of academic research which supports focusing on choosing the right strategic asset allocation as opposed to short-term returns. However, it's understandable that one can become frustrated with recent bearish markets. I have converted to sitting on the sidelines much since the ASX200 was around 5900 but with earnings season soon approaching, you have to wonder whether too much negativity has been priced in now. Anyway, none of this is advice and I tend to go off on a tangent, but it's just my


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## wayneL (7 July 2008)

sardines said:


> Depends on your timeframe - most people will agree that time in the markets is better than timing the markets so this idea of a 'gamble' becomes less apparent over the long-run




They do???

If so, it is only from watching muppets like Paul Cli...whatever his name is, on that stupid "Money Show".

Of course good timing may be more of a function of circumstance and luck, than skill, but nevertheless, the mathematics of timing is irrefutable.


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## Kauri (7 July 2008)

The market/markets/horse races/footie/... whatever/, are *ALL* like the weather... follow them accordingly... and gambling doesn't come into it... much...

Thanks Frontiersman..
..........kauri


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## Family_Guy (7 July 2008)

Here is my take.
Followed the markets since we got 3rd in a schools thing some 22 years ago. Paper traded my way thru life since. Recently sold a house and bought into a new suburb and had a spare $200k left over, no debts. Sat on the money for 6 months before i turned to the missus in April and asked "what are you doing with the money in the bank?""

I HATE property to make money......seriously. I stand here and say right here and now, that it's the GREED of the real estate agents that have got this country into a mess, the sheep followed other sheep into making money in houses and before you know it, no-one can afford the repayments because the prices are to high, the economy ****s itself..... and i sit back and laugh silently.

So i thought, rightly or wrongly, that the market had fallen enough by the end of April. So i took $20k and going on something i read once (have no more than 5% of your cash into one stock) i set out buying what i thought were cheap stocks for value. My goal.......a 10% profit and pull out. That first day, i bought 6x$1k parcels, that i still have and are all behind the 8 ball still. I've made some good buys, but i have 11 parcels i still hold that have bought me back to an unrealised loss of combined $4k.....ironically, the profit i sold for up until EFY07. I have one parcel in front currently, ANZ, and money in the account for something that tips me over the edge to buy........and there are lots of watches...........i have 41 i watch atm and want to buy, i have not committed and wont, any more than the $20k i 'gave' myself.

If the $20k was all i had, then i would call what i do, a gamble. The thing i like about trading is that it is different from other forms of gambling.....horses, footy games etc. And by that i mean, if you throw $50 on a horse to win, and it comes 2nd, you lose. If you throw $1k on a solid foundation stock and the price drops and you sell......you lose. If you don't sell or panic, then you will eventually win. You need to BE THE BALL. Be the ball and it's not a gamble. 

PS.....google BE THE BALL.


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## It's Snake Pliskin (7 July 2008)

Everything in life is a gamble so yes the markets are a gamble. An educated gamble, speculation, thanks to the romans and their lovely language make it quite clear.


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## brty (8 July 2008)

Family Guy,

From my understanding of what you posted, you have a plan to take a 10% profit, but no plan to take any losses?!?

Your plan could theoretically make money if shares occillated like a pendulum around a fixed point. Unfortunately they don't. Any company can go below a certain level and stay there for a long time (or never recover) and this includes what are known as 'bluechips'.

Putting it bluntly, your plan sucks. It is not a gamble, but a guaranteed loser in the long term. If your parcels are $1k, then your profit of 10% is only $100 before your exit the position. Brokerage alone will eat 40% of your profit, then there is slippage. I must have this wrong, nobody would undertake such a plan with such a guaranteed loss.

Perhaps you could look/study/research, at doing the opposite?? 

brty


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## CoffeeKing (8 July 2008)

brty said:


> Family Guy,
> 
> From my understanding of what you posted, you have a plan to take a 10% profit, but no plan to take any losses?!?
> 
> ...




I agree with you brty - I started out in the same manner, a 10% gain but soon realised that the parcels would need to go up 10 cents to get my $100 less the brokerage which didn't leave much left.
I went the " look/study/research, at doing the opposite " idea and have'nt looked back, I have my bad days, but a lot of better one's come along now.

"Make the most ON what you have - not have the most of what you can"
would that be a fair comment? my


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## son of baglimit (8 July 2008)

Family_Guy said:


> So i took $20k and going on something i read once (have no more than 5% of your cash into one stock).




something i read once - and who wrote that, a broker or a fund manager i guess.

i am in a similar situation to you family guy, but i have learnt over time that diversification (with that level of investment) is for schmucks. 
5% maximum per stock - you are therefore asking yourself to study, learn, absorb and consider maybe 20 companies, maybe more (41 on watch).

considering the level of investment you are making ($20k, being 10% of the $200k) and the remaining free cash you have, i suggest simply keeping track of only a few, and ensure they are companies that you not only have time to study, but also you are able to absorb their psychology, their brand, to the point that every piece of news they deliver you can react sensibly to, and not feel the need to buy or sell more simply on what you initially read. get to know these companies. maybe choose companies who's product interests you, or are your employer, simply to make the study more bearable. 

fwiw, i tried investing in media, health, debt collecting, retail, and a few others - i made money but its just too hard to keep up with the ups & downs of so many sectors. i had most cash in gaming (TAH) cos thats where i worked and had an interest in. my sole interest is now in O&G services, and specifically NMS, and as such i am able to understand and react to every event that occurs, not only to that company, but the whole sector.


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## Family_Guy (8 July 2008)

"If your parcels are $1k, then your profit of 10% is only $100 before your exit the position. Brokerage alone will eat 40% of your profit,"

Don't know how to do the quote box. I am using Bell, so $15 in and out and i include that as part of the cost of the package, so in theory the parcel needs to be worth $1130 before i sell it. I know it's not much profit and i have not set any losses. Why? Because $100 is $100. I'm in no hurry, so if the stock drops and sits there for 3 or 5 years, it's no biggy to me.

The other thing is that because i am so new to trading, i need to read and read and read. I'm using this site, a couple of books that have been recommended thru this site and any research i can find on the web. When i work out a trading system i'd like to use, then i'll play with that. In the meantime i don't think what i am doing is a gamble. It may suck as a plan, but i'm in, i'm learning the ropes and i'm having a hell of a lot of fun. Cheers for the comments above, there was something else i wanted to reply to above, but i have to go for a run first.


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## explod (8 July 2008)

son of baglimit said:


> something i read once - and who wrote that, a broker or a fund manager i guess.
> 
> i am in a similar situation to you family guy, but i have learnt over time that diversification (with that level of investment) is for schmucks.
> 5% maximum per stock - you are therefore asking yourself to study, learn, absorb and consider maybe 20 companies, maybe more (41 on watch).
> ...




I agree.   Diversification to me means, a percentage in the stock market, some in property, some in say physical gold and silver and perhaps a couple of named paintings.    So now with 25% in the stock market, I split that about three ways perhaps 4 some times and study the socks off those few stocks, that's nearly down to 5% but the best formula I can come up with at the moment.   

Having said that I drift higher or lower depending on the fundamentals and sentiment for each segment.

The sentiment on stocks is very bad at the moment so am down in that area but am confident that the ones I do hold are sound and will go back up and beyond in due course.

I do not consider this gambling.


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## Sean K (8 July 2008)

wayneL said:


> The roll of luck should never be underestimated in investing, sport, *life *etc.



Life is a gamble. 

We take a calculated risk getting out of bed in the morning.


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## tech/a (8 July 2008)

kennas said:


> Life is a gamble.
> 
> We take a calculated risk getting out of bed in the morning.




The older you get the riskier GOING TO BED becomes.


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## Sean K (8 July 2008)

tech/a said:


> The older you get the riskier GOING TO BED becomes.



 LOL Tech. 

I wonder how you mitigate the risk of that later on? Wear and ECG to bed..


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## wayneL (8 July 2008)

kennas said:


> LOL Tech.
> 
> I wonder how you mitigate the risk of that later on? Wear and ECG to bed..




...make her do all the work.


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## tech/a (8 July 2008)

wayneL said:


> ...make her do all the work.





*I KNEW *that was coming!!

Your only as old as the woman you feel---eh!


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## brty (8 July 2008)

Family Guy,

Ok, so you have a plan that waits for a 13% price rise, and the cost to you is $30, so transaction costs are 23% of your profit. Yet your losses are held for the long term until they come back.

The longer you keep up this method, the greater the percentage of losing stocks in your portfolio. If you continue long enough/enough trades, you will get to the point where you hold only stocks that have gone down in value from your entry point (and have all your money invested in them).

Compared to 'conventional wisdom', instead of holding winners, you are cutting them short. You are holding losers, you are letting your losses run.

With this plan, slowly but surely the value of your entire portfolio will be reduced, you will underperform the indexes and prove to yourself your original theory, that shares are a gamble.

brty


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## julius (8 July 2008)

tech/a said:


> The older you get the riskier GOING TO BED becomes.




Hahaha...I just choked on a bit of ham sandwich

~~~~~

To the OP:

Here is the game - we flip a coin, heads you pay me $1, tails I pay you $2.

The majority don't understand the wager - who's paying who & where the odds stand.

Yes, it is a 'gamble', but do you want to play?

Bear in mind, if you only have $5 you could easily get wiped out...


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## white_goodman (8 July 2008)

i originally used $1000 buy in into stock but noticed the reward didnt match the risk.... my minimum now is around $3000 so the brokerage is less a %...still atm it hasnt been good, my entire portfolio is down around 25%


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## xyzedarteerf (8 July 2008)

no no no well sometimes it is. If you treat it like a casino it will be casino. If you treat is as an investment it will be. 
I too often have this casino mentality, especially after a big loss  really though the stock market is not a casino the money you invest/bet is used by the company to fund research/development/capital.


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## Trembling Hand (8 July 2008)

xyzedarteerf said:


> the money you invest/bet is used by the company to fund research/development/capital.




No its not. Fundraising and IPO it Maybe that but I would think that is about 0.000005% of the transactions.


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## r34ztune (8 July 2008)

thanks for your answers thus far, I'm new to this, not being negative, only trying to learn off more experienced traders here.
Still no-one answered my original question on fundamentals, like
1.FMG- how can a company with negative cashflow and nil sales achieve a stock price of $10? 
2. Why do stocks move on headlines and rumours rather than concrete evidence?
3. Why do stocks fall, despite increasing EPS, and meeting sales targets?
If you can't pick a stock on evidence what method/s do you employ?


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## Trembling Hand (8 July 2008)

r34ztune said:


> thanks for your answers thus far, I'm new to this, not being negative, only trying to learn off more experienced traders here.
> Still no-one answered my original question on fundamentals, like
> 1.FMG- how can a company with negative cashflow and nil sales achieve a stock price of $10?
> 2. Why do stocks move on headlines and rumours rather than concrete evidence?
> ...




Shares are priced on future performance/expectations not on the past.


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## MichaelD (8 July 2008)

r34ztune said:


> 1.FMG- how can a company with negative cashflow and nil sales achieve a stock price of $10?



Because it can.


r34ztune said:


> 2. Why do stocks move on headlines and rumours rather than concrete evidence?



Because they do.


r34ztune said:


> 3. Why do stocks fall, despite increasing EPS, and meeting sales targets?



Because they do.


r34ztune said:


> If you can't pick a stock on evidence what method/s do you employ?



Price goes up - buy
Price goes down - sell


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## tech/a (8 July 2008)

Why does the Media have to devise a reason for rise and falls in the market on a daily basis.
Simply because people want to have a reason for everything.

Which brings me to this.

"The only reason some people get lost in thought is because it's unfamiliar territory."


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## Temjin (8 July 2008)

r34ztune said:


> thanks for your answers thus far, I'm new to this, not being negative, only trying to learn off more experienced traders here.
> Still no-one answered my original question on fundamentals, like
> 1.FMG- how can a company with negative cashflow and nil sales achieve a stock price of $10?
> 2. Why do stocks move on headlines and rumours rather than concrete evidence?
> ...




MichaelD already answered this in the most simplistic form. 

Remember the market efficient theory is based on every players in the market will think RATIONALLY and consider all available information before making a decision. This is inherently flawed because human emotions are involved. 



			
				tech/a said:
			
		

> Why does the Media have to devise a reason for rise and falls in the market on a daily basis.
> Simply because people want to have a reason for everything.




Very true. 

One could easily go back to the pre-tech boom and look at the brokers' explanations on why a particular tech stock is worth its price because of that and that.


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## MRC & Co (9 July 2008)

The casino and it's dealers are effectively gambling.  Would you like their odds?    I wouldn't mind!


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## doogie_goes_off (9 July 2008)

To gamble is to speculate with money you have, some speculate with money they do not. This is an area beyond a standard gamble. The odds wil dictate the outcome. Gambling is for beginners, the stock market relies on educated investors applying the better odss. Few bets are an island.


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## doogie_goes_off (9 July 2008)

To gamble is to speculate with money you have, some speculate with money they do not. This is an area beyond a standard gamble. The odds will dictate the outcome. Gambling is for beginners, the stock market relies on educated investors applying the better odds. Few bets are an island.


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## AlterEgo (9 July 2008)

r34ztune said:


> I don't think there is any secrets for a trader.
> To me it comes down to 1 thing *LUCK*
> IMO any stock is a gamble




I once thought that too.



r34ztune said:


> I tried to pick stocks on fundamentals like P.E ratios, EPS, LFL growth, meeting budgets ect but many times you fail, the s/market doesn't operate on evidence!!




So stop picking stocks by that criteria! That’s where you’re going wrong. 



r34ztune said:


> IMHO the stockmarket operates on the following 1.Greed 2.Fear 3.Confidence




Exactly!!! So now that you’ve come to that realization, you can understand why the above fundamental figures are totally useless to your prospect to make money and should therefore be totally ignored. 



r34ztune said:


> If you can't pick a stock on evidence what method/s do you employ?




You’re looking at the wrong sort of evidence. Try using *technical *evidence rather than fundamental. ie. _The evidence of the action of the stock price itself._ MichaelD, above, put it very simply “Price goes up – buy. Price goes down – sell.”. There’s more to it than that obviously, but basically if a stock is in an upward trend then you buy and ride with the trend until the trend comes to an end, then sell.


PS. This is IMO only, and I don't wish to start an argument on T/A vs F/A.


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## kgee (9 July 2008)

Of course it's a gamble....from a lot of the reply's here people seem to be suggesting that because your taking a calculated risk it's not gambling - nonsense.

Gather more information and use informed decision making with your trades seems to be what everyone is saying...but at the end of the day (unless your insider trading) no matter how many fact's and information you have gathered there is always the unknown....and I'd suggest the unknowns are usually bigger than the knowns.

Alternatively there is TA which if you boil things down is basically "trend following"....sounds like gambling to me

Proffessional gamblers say one of the biggest problems with gambling is confusing skill for luck and too often this leads them to having an inflated belief in their skill and the system they use.

 Maybe thats the case with Investors as well, over the last how many years has the stock market been bullish with overall returns above 10%. I read last year that on the ASX 51% of companies went up  49% down. So even if you took a punt on it you still had a better chance of winning than losing


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## AlterEgo (9 July 2008)

kgee said:


> Of course it's a gamble....from a lot of the reply's here people seem to be suggesting that because your taking a calculated risk it's not gambling - nonsense.




Depends on how you define gambling. There is certainly risk involved. But unlike the casino where the probability is stacked against you, it *is *possible to win consistently in the stock market. It's all about selecting the highest probability trades, and managing risk. Letting your profits run, and cutting losses short, ie. keep your losing trades small, and maximizing your profits on your winning trades.


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## AlterEgo (9 July 2008)

kgee said:


> Alternatively there is TA which if you boil things down is basically "trend following"....sounds like gambling to me




It's the F/A's that are the real gamblers, IMO, as they usually don't manage risk - "but it's a great company, it'll come good one day" is the usual line.


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## tech/a (9 July 2008)

Consistent winning in any persuit is about picking up a trend---or winning streak.

With trading we simply skew the numbers in our favor by letting our winning streak run and pulling the pin when a loss is incurred.

Those who arent conversent with how this can be achieved and consequently dont---consider this business gambling.

Those that are conversent with the ways of doing this either in a discretionary or sytematic methodology---get on with business.

When you place a bet you win OR lose. Your full wager is at risk.
When taking a trade we can limit loss.


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## kgee (9 July 2008)

AlterEgo said:


> Depends on how you define gambling. There is certainly risk involved. But unlike the casino where the probability is stacked against you, it *is *possible to win consistently in the stock market. It's all about selecting the highest probability trades, and managing risk. Letting your profits run, and cutting losses short, ie. keep your losing trades small, and maximizing your profits on your winning trades.




So if you do sports betting and back Federer to beat hewitt then the odds are definitely in your favour and that makes it not GAMBLING ?

While I'm on this hobby horse let's talk semantics then, how often in this forum do you see the word "speculative" thrown about????? Tell me that isn't gambling!?!?

No that's ok because we're sophisticated investors we'll call it speculation - nonsense


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## kgee (9 July 2008)

tech/a said:


> Consistent winning in any persuit is about picking up a trend---or winning streak.
> 
> With trading we simply skew the numbers in our favor by letting our winning streak run and pulling the pin when a loss is incurred.
> 
> ...




You sound quite adamant about that but
Successful Gamblers also have money management systems in place...
their outlay on bets is the Equivalent of your stop loss...so theyr'e really  risking the same thing.

Don't agree on what I take as your thoughts on trends, look at horse racing if you only followed trends well I hate to think


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## tech/a (9 July 2008)

kgee said:


> You sound quite adamant about that but
> Successful Gamblers also have money management systems in place...
> their outlay on bets is the Equivalent of your stop loss...so theyr'e really  risking the same thing.
> 
> Don't agree on what I take as your thoughts on trends, look at horse racing if you only followed trends well I hate to think





Because I take advantage of trends.
No its not the same.(Thats just one aspect ,position sizing).
If I bet on a race or a deal in cards I cant remove my bet half way through.
I can when I trade in fact I often do.
In the above example I cant keep the horse racing because its winning but I can in Trading.
I can also position size like you can gambling.
I have far more control of my $$s.
Your odds are fixed---my odds are determined by position sizing and Stop placement (R/R).

If youd like to see how following trends can bring tremendous profit I'll post a link to one of my systems which has been traded live for 6 yrs and still is-- $30k to $439K in the last 6 yrs.


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## kgee (9 July 2008)

tech/a said:


> Because I take advantage of trends.
> No its not the same.(Thats just one aspect ,position sizing).
> If I bet on a race or a deal in cards I cant remove my bet half way through.
> I can when I trade in fact I often do.
> ...




Lets talk semantics again....isn't a trend the same as saying tendancy?
Something has the tendancy to do something...its not a sure thing????
And because someone is successful on the stockmarket they're not gambling whereas a successful gambler well theyr'e still gambling?
The similarities between gambling and the stockmarket are huge but popular opinion on the 2 are so at odds (excuse the pun).
Glad to hear you have a successful system how much is that going to the average punter ? I don't know why I said that...is it free?
And anyway why is gambling so bad ASF has been running a stock picking comp for years


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## julius (9 July 2008)

kgee said:


> And anyway why is gambling so bad ASF has been running a stock picking comp for years




Not much of a gamble really - no downside, unlimited upside...it's a free raffle ticket


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## kgee (9 July 2008)

julius said:


> Not much of a gamble really - no downside, unlimited upside...it's a free raffle ticket




Well some might think your putting your "creditability" up as a stake....
not much downside for me there


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## barney (9 July 2008)

kgee said:


> Of course it's a gamble....from a lot of the reply's here people seem to be suggesting that because your taking a calculated risk it's not gambling - nonsense.
> 
> Gather more information and use informed decision making with your trades seems to be what everyone is saying...but at the end of the day (unless your insider trading) no matter how many fact's and information you have gathered there is always the unknown....and I'd suggest the unknowns are usually bigger than the knowns.
> 
> ...




I don't disagree with many of your comments Kgee (although I get the vibe you may be a former disgruntled "punter"), but I think Tech puts it in perspective very succinctly ....

Just for the record, Wikipedia's description includes this ....

Investments are also usually not considered gambling, although some investments can involve significant risk. Examples of investments include stocks, bonds and real estate. Starting a business can also be considered a form of investment. Investments are generally not considered gambling when they meet the following criteria:

Positive expected returns (at least in the long term) 
Economic utility 
Underlying value independent of the risk being undertaken 
Some speculative investment activities are particularly risky, but are still usually considered separately from gambling:

Securities derivatives, such as options or futures, where the value of the derivative is dependent on the value of the underlying asset at a specific point in time (typically the derivative's associated expiration date) 
Foreign currency exchange (forex) transactions 
Prediction markets 

Personally, I think the less informed you are, the closer it probably is to "gambling" ....

I also believe that the best "gamblers" in the world, are probably not "gamblers" at all  ............... but they "gamble" a hell of a lot!!

Simply Risk vs. Reward ......... putting the odds in your favour lowers the risk.


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## kgee (9 July 2008)

Well wikipaedia put's some closure on this thread huh?


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## AlterEgo (9 July 2008)

kgee said:


> Successful Gamblers also have money management systems in place...




Then I wouldn’t consider them to be gambling. ‘Gambling’ is if you are relying entirely on chance. Eg. Lotto – each outcome is totally random.



kgee said:


> Lets talk semantics again....isn't a trend the same as saying tendancy?




Yes



kgee said:


> Something has the tendancy to do something...its not a sure thing????




No, of course not.



kgee said:


> And because someone is successful on the stockmarket they're not gambling whereas a successful gambler well theyr'e still gambling?




No, a successful ‘gambler’ is not gambling if he has a proven track record. If he has shifted the probability in his favour (ie. If his strategy has a positive expectancy) then it’s not gambling.



kgee said:


> The similarities between gambling and the stockmarket are huge




I agree. The majority of inexperienced people in the market ARE gambling, as they have no strategy to give them an edge.


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## ROE (9 July 2008)

r34ztune said:


> Hi all,
> I don't think there is any secrets for a trader.
> To me it comes down to 1 thing *LUCK*
> IMO any stock is a gamble
> ...




The difference is there is always a loser and a winner in gambling not so with stock.

say everyone  pick a football match 5 years ago, for every winner there is a loser

everyone pick WOW 5 years ago, everyone is a winner.


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## >Apocalypto< (9 July 2008)

Kauri said:


> The market/markets/horse races/footie/... whatever/, are *ALL* like the weather... follow them accordingly... and gambling doesn't come into it... much...
> 
> Thanks Frontiersman..
> ..........kauri



*
WELCOME BACK KAURI!*

Poster of this thread looks like u got in to late and bearing the brunt of bad timing!  A man makes his own luck.

Is trading a gamble? every trade I make is a 50/50 I can't know what the market will do exactly, hence I manage my risk. But I don't think you can call it a punt like u take at the casino. In the market the punter has a much better chance against the house. all depends on how you approach it.

Cheers


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## tech/a (9 July 2008)

*Call it what you like. Its the BEST game in town.*

I can place my bet and once it moves out of the gates (buy trigger) then decides to turn back the other way (retrace) I can go to my bookie (Broker) and get my money back--you cant.

I can even place my bet AFTER I can see its bolted out of the gate.(Limit order).

I can adjust my odds to whatever I like (Reward to Risk).

If my horse (Stock) Turns around during the race to the line (My target) and runs in the opposite direction I can go to my bookie and grab part of my potential profits.

Not only that but I can take my partial profits and then Back it to go the other way! (Go short).

If my horse reaches the finish line (My target) I can let it keep going all the time making even bigger profits.(Let profits run).

The more people who invest in my horse (Volume) the faster it goes (Range) and the more I make.With horse racing the more who back a horse the shorter the odds!

If I like the way my horse is running to the finish line my bookie will let me put more on it---during the race!!

I can back horses to go in different directions in the same race.

My horse doesnt have to finish the race (Reach my target---or anyone elses) for me to profit.

*Now imagine if you could do all that in a horse race!!*
Ever heard the term MUG PUNTER----I know where they hang out!


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## professor_frink (9 July 2008)

tech/a said:


> *Call it what you like. Its the BEST game in town.*
> 
> I can place my bet and once it moves out of the gates (buy trigger) then decides to turn back the other way (retrace) I can go to my bookie (Broker) and get my money back--you cant.
> 
> ...




GOLD

that's worth printing out and sticking on the wall!


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## roland (9 July 2008)

tech/a, you, amongst a few others here on ASF, are such an inspiration to ASF'ers like myself.

Sometimes it's easy to forget the basics (or to learn them in the first place) and to get bogged down in bad trading practices.

Your no nonense comments are always food for thought and continually help me to become a better trader.

Thanks for your posts, and keep 'em coming!

Cheers


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## AlterEgo (9 July 2008)

ROE said:


> everyone pick WOW 5 years ago, everyone is a winner.




No, not true (excluding dividends for a moment).  If EVERYONE picks WOW 5 years ago, holds for those 5 years and never sells...... the stock price wouldn't have gone up. It wouldn't have even moved at all. For a stock to move, up or down, requires a constant turnover of stock. And of all these people buying and selling every day, there are both winners and losers.


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## MRC & Co (9 July 2008)

professor_frink said:


> GOLD
> 
> that's worth printing out and sticking on the wall!




X that by 2!!!!!  

I should show this to some of my punting mates!

Though, trading equities, futures, bonds, options, whatever you vehicle of choice, IS gambling.  A successful gambler just puts the odds in his favour through an edge, just like a Casino does.

As for the media needing a reason for prices moving each day, of course, what are they going to say on the Finance news, oil moved up today and the stockmarket retraced, because it did.  LOL.


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## barney (9 July 2008)

kgee said:


> Well wikipaedia put's some closure on this thread huh?





C'mon kgee, I know you say you "doubt everything" (I actually doubt that!!), but surely you can't doubt the words of Wikipedia!!   .... Sacrilege.


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## kgee (10 July 2008)

yeah I thought the case was closed you can't argue with wikipaediea right?

1 point I must pick up on is in sports betting it's quite possible to make a half time bet on games so you can protect your initial outlay.
2. its possible to bet that your team won't win ( going short)
I don't know why I argue 

ps I don't back horses my sisters an equine veternarian and closely associated with the industry 

where's my bunch of cheerleaders


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## MRC & Co (10 July 2008)

kgee, what is a Casino doing?  Are they gambling?  Why are they consistently making money?  What is the edge in roulette?  Think about it.  Gambling with an edge is profitable over many 'wagers'.


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## kgee (10 July 2008)

MRC & Co said:


> kgee, what is a Casino doing?  Are they gambling?  Why are they consistently making money?  What is the edge in roulette?  Think about it.  Gambling with an edge is profitable over many 'wagers'.




my opinion is that a casino is a good night out
I dont play poker and to this day I can not understand how a small number of people can consistently make it to the last table in the big tournamounts?

Not all gambling is done at a casino I totally agree that the house has the best oddds be it all of 51% they still win.... why because of human behaviour lets try and seperate that from professional gamblers 
and if you can seperate the differrence's between a successfull gambler and someone who trades on the stock market I still see no differrence its all to do with risk management 
again i reiterate my initial thesis of how gamblers no.1 problem is they attribute success to skill when it can be luck
this is a huge bear market we have been trading in...from my initial post even if you took  a punt on this market you still had a 51% of success
I'm drunk and blah blah blah but I still finf somthing fundamentally weak with all your arguements.
the similarities between gambling and the stock market are there
too many drinks if you wish to discuss thiss later when I'm c;ear headed please do


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## MRC & Co (10 July 2008)

No, I am not asking what people are doing at a Casino.

I am asking what IS the Casino doing, and it's dealers?  

They are gambling, against you!  

They have the odds in their favour, because they have an EDGE.

In Europe, the 0 on roulette, in the States they have an extra 00 so a much larger edge.

Over a large number of transactions, they are SURE to be infront.  

Of course, roulette wheel bias, card counting etc were used to gain a larger edge, but they have found ways to negate those problems and their edge remains.  

Now, if you are a trader/horse race punter/sports better if you have an EDGE (and many do), you can too, over a large number of transactions, exploit that edge.

Right?

The #1 sports punter in Australia uses a statistics system to make his selections right?  He doesn't even know the horses names.  Now we just have to introduce derivatives and options to the horse races   Anyone up for the challenge?  Could become a booming industry!


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## barney (10 July 2008)

The main thing which really gives the Casino its edge, is the "depth of its pockets" imo.

For the average mug punter out there, making 1% on their money wouldn't even entice them to put their beer down  :bier:  .......... and there is their folly ..

Professional "gamblers", whether it be trading, or horses, have something mug punters don't ........... discipline ....... (still working on mine   )

Disciplined gamblers don't need luck ........... Most of the "lucky" gamblers I've met have "lost their shirts" ........... sooner or later.  

PS  (Can someone loan me a shirt!!) 

PPS (A tee-shirt will be fine!!)


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## strudy (10 July 2008)

The stock market is a gamble if you go in unprepared and have not got any knowledge of how to handle risk or any knowledge about trading successfully. (See My Blog on this site on handling RISK..)

You need insurances otherwise you are guaranteed to do your dough and very quickly.
There are traps in the market to catch the unwary and the innocent.

It is a constant learning experience and the biggest hurdle you will face is yourself. For FEAR and Greed are your biggest obstacles.

Take a good  look at the markets today. Both of these emotions are running riot in the market every day that it is open.

You have to learn to be an Individual not one of the herd.


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## michael_selway (10 July 2008)

r34ztune said:


> Hi all,
> I don't think there is any secrets for a trader.
> To me it comes down to 1 thing *LUCK*
> IMO any stock is a gamble
> ...




Hm have you looked at coal/iron ore/phoshate stocks?

If you invested in them just 12 months ago, they have more than tripled etc

Surely it cant be luck if you did some Fundamental Research (external & internal) on it? I mean there is always going to be an "element of luck" in anything you do, but it can be minimised

However if you bought based on charts alone, yeah that is majority luck in my opinion

thx

MS


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## MichaelD (10 July 2008)

michael_selway said:


> Hm have you looked at coal/iron ore/phoshate stocks?
> 
> If you invested in them just 12 months ago, they have more than tripled etc
> 
> ...




Over the last 12 months my portfolio has rotated from financials and retail to now being almost completely in coal, iron ore, oil, and fertilizers.

I do no fundamental analysis and pretty much no technical analysis and I can point to numerous traders on these boards whose portfolios have done exactly what mine has done, regardless of the amount or non-amount of analysis they do.

Luck? Skill? Or just the pure mathematical consequences of cutting losers quickly and holding onto the winners?


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## Mofra (10 July 2008)

What amazing coincidence - the more educated & prepared one becomes, the "luckier" they get 

Any market is viewed in one light by the speculator - a means of transferring wealth from the ill-prepared/gambler to the educated & informed.


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## barney (10 July 2008)

MichaelD said:


> Over the last 12 months my portfolio has rotated from financials and retail to now being almost completely in coal, iron ore, oil, and fertilizers.
> 
> I do no fundamental analysis and pretty much no technical analysis and I can point to numerous traders on these boards whose portfolios have done exactly what mine has done, regardless of the amount or non-amount of analysis they do.
> 
> Luck? Skill? Or just the pure mathematical consequences of cutting losers quickly and holding onto the winners?





Hi Michael,   There will be many who are now asking, if you do little F/A or T/A, how do you arrive at being on the "right" stocks at the right time??    I'm assuming you are using EOD scanning to pick up on the "movers", yes??  Cheers.


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## MichaelD (10 July 2008)

barney said:


> if you do little F/A or T/A, how do you arrive at being on the "right" stocks at the right time??




I don't. It's the mathematical inevitability of cutting the wrong stocks out for small losses. All you end up with are the "right" stocks until they stop being the "right" stocks.


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## barney (11 July 2008)

MichaelD said:


> I don't. It's the mathematical inevitability of cutting the wrong stocks out for small losses. All you end up with are the "right" stocks until they stop being the "right" stocks.





I understand that, but more curious about what draws you to a given stock in the first place.  If you don't use F/A I assume you must run your entry parameters over the charts?  So T/A for entries?  Discretionary exits, or just let the trailing stop do its job?


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## MichaelD (11 July 2008)

barney said:


> So T/A for entries?  Discretionary exits, or just let the trailing stop do its job?




This is my entry in its entirety;

CLOSE>Mov(CLOSE,175,EXPONENTIAL) AND H>Ref(HHV(H,2),-1) AND CLOSE>OPEN

Translated into plain English it has 3 components;
1. Stock is trading above a long term moving average (= long term uptrend)
2. Today's high is the highest in 3 days (= short term uptrend)
3. Today is an up day.

That's all.

I trade the ASX300 on EOD data and use a 6.5 ATR stop.


No rocket science there, and yet the system always ends up with the strongest stocks in the strongest sectors.


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## MRC & Co (11 July 2008)

ha ha, I LOVE it Michael!

K.I.S.S at it's absolute finest!

Trading is not rocket science, though some would lead you to believe otherwise, if only for their own head.


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## barney (11 July 2008)

MRC & Co said:


> ha ha, I LOVE it Michael!
> 
> K.I.S.S at it's absolute finest!
> 
> Trading is not rocket science, though some would lead you to believe otherwise, if only for their own head.




:iagree:

Does that mean that the smartest people may actually be  "simple minded"  Thanks for sharing Michael.


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## ppereira (11 July 2008)

Hi MichaelD, or anyone who can shed some light on this for a greenhorn at trading,
Not new to shares but new to trading if it is not too rude could you point me in the right direction with regard to trading, where or which programme is used to obtain these formulaes at a quick glance? Or is it a matter of spending hours researching data with a calculator on hand. I find all this of great interest and any help would be greatly appreciated.
Thanks in advance


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## MichaelD (12 July 2008)

ppereira said:


> Not new to shares but new to trading if it is not too rude could you point me in the right direction with regard to trading, where or which programme is used to obtain these formulaes at a quick glance?




*** The formulas are not the answer. ***

I could write several books on this topic as it's very much an onion, however, I personally used a combination of MetaStock and TradeSim to work out my long term trend following system. Others would recommend AmiBroker as substantially cheaper (it is).

First, though, by FAR your best investment at this point in time will be several books on trading. I suggest;

1. Trading Secrets - Louise Bedford or
2. The Art of Trading - Chris Tate

3. Adaptive Analysis - Nick Radge
4. Trading Your Way To Financial Freedom - Van Tharp

5. Trading In The Zone - Mark Douglas

If you are WISE, you will read extensively before you start trading. If you are less wise, you will jump right in after reading a couple of chapters of the first book and the market will continue your education for you at much greater expense.

If you are SUPER WISE, you will not start trading at all until your opinion of book 5 changes from "what a load of airy fairy bull****" to "this is the greatest book on trading ever written". (Although I don't believe you can actually do that without at least having dipped your toes into the water first.)


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## johenmo (12 July 2008)

It's risk management - mothing more, nothing less.  The successful ones do the work, calculate the risk and make $.  If you buy a stock with minimal study, no strategy, no stop loss etc etc then you haven't managed your risk.  So "luck" as know it has a small influence.

I'm new to stocks (a bit behind someone like Family Guy), not day trading (still much to learn), have a couple of stocks which I have put into the "hold and hope" category - fine with me as a learning experience, as I was a bit early jumping in.  If I had bought these stocks anytime in the last 3 years I would have been doing well!  Market/sentiment is driving a lot down.  One company I have on a watchlist is in my industry and is doing very well in terms of EBIT/ROE/ROI etc but the share price keeps going down bit by bit.  If it were a private company the owners would be *very* happy as it would be making them rich.

I will buy again - when I have finished working out my strategy properly, and when the time is right by my standards.  I know that the next purchases will be much better. I won't be putting so much trust in being lucky (LOL).

I always see the FA va TA argument - raised in this thread as well.  It's clear that day traders and longer term investors have different views so no-one will win this argument.  For the majority of people FA and TA are needed - even I can see this - it's just a question of the balance.

As Kennas says - life is a gamble.  You can cross the road and die or survive -depends on your strategy!!

Create your own luck!


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## MrWhite (13 July 2008)

tech/a said:


> *Call it what you like. Its the BEST game in town.*
> 
> I can place my bet and once it moves out of the gates (buy trigger) then decides to turn back the other way (retrace) I can go to my bookie (Broker) and get my money back--you cant.
> 
> ...




What you are actually describing here is a betting exchange such as Betdaq, WBX or Betfair.

They run on a similar model to the ASX, where you are never betting against the house. Each bet needs another individual to lay against the back bet that you are making. The exchanges then take a percentage profit off the winner of the exchange.

Because of Australian laws we don't get access to the best feature of these exchanges, which allow you to bet while a horse race/AFL game/NRL game is actually in play (Although you can do it over the phone with some).

So this allows you to back a selection before the race commences at high odds. Then if people shorten the odds by backing your horse down to a favourite you can lay that selection (Just like short selling) at those lower odds and create what is called a greenbook. Where even if the horse wins or loses you will make some money.

You can also change your bet while the race is running if your horse gets a bad start and reduce your loss by taking the opposite of your first bet.

The other thing about betting exchanges is they offer API interfaces like the ASX so a lot of people such as stock brokers and day traders write interfaces for them so they can place 1000's of bets an hour to hedge their profits.

While I was in Europe a lot of the main banks like UBS, HSBC, LLoyds TSB all employed full time traders who just gamble on betting exchanges. (Don't you love what banks do with our money)

So the general assumption that gamblers don't do their research and don't have sophisticated ways to mitigate the risk and make returns is another myth created by media hype.


Mr White.


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## noirua (13 July 2008)

The gambler is the investor not the stock market.


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## ppereira (16 July 2008)

MichaelD

Thanks for your thoughts there MD greatly appriciated. Fortunately have already read Nick Radge so hopefully should be on the right track, also looks like I have a mountain of work to get through other books.
Cheers


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## Nick Radge (16 July 2008)

I think the main argument against a gambling analogy is that in gambling you either take a full 1R loss or a full 1R profit. In trading however one can reduce the initial 1R risk with relative ease and keep an unlimited profit potential. Doing so skews the number in ones favour - which can't be done with gambling.


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## ithatheekret (16 July 2008)

Perhaps it would have been more appropriate to head the thread as ; 

The stock market is like poker .

The fall of a card here and there determines the hands held , but many other factors decide who wins the game .


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