The stock market is a gamble

[MRC & Co]

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'.

 

[kgee]

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

 

[MRC & Co]

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!

 

[barney]

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!!)

 

[strudy]

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.

 

[michael_selway]

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.

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

 

[MichaelD]

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

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?

 

[Mofra]

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.

 

[barney]

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.

 

[MichaelD]

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.

 

[barney]

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?

 

[MichaelD]

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.

 

[MRC & Co]

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.

 

[barney]

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.

 

[ppereira]

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

 

[MichaelD]

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.)

 

[johenmo]

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!

 

[MrWhite]

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!

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.

 

[noirua]

The gambler is the investor not the stock market.

 

[ppereira]

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