Why is trading competitive?

I would like for someone to explain to me why trading is a competitive business. I understand that if I have a grocery store and someone else sets up a grocery store in the same block, I clearly have less profit available for me. This is the nature of a competitive business. I just don't understand at a theoritical or practical level why this is true of trading.

Most books on trading state that the professionals are better capitalized, have better tools, systems, staff and as an independent trader I am competing against them. What does this really mean? How can I suffer in my results or ability to succeed if the pros do good in their trading?

From what I understand about competitive games, a game, sport or activity is only competitive when the actions of others affect my own results.

As an example, in competitive sports like football, basketball, soccer, tennis, boxing, wrestling etc. what the other team does affects my teams strategies and whether I win or lose.

In non-competitive sports such as bowling, video games, golf, figure skating, running, swimming, bicycling, skiing, etc. I am really only playing against myself for an absolute score. What the others are doing is not really directly affecting my potential to win even though I am playing beside them.

An other example of a non-competitive event is grades in high school or college. Even though it feels like I am competing against other students, I am in fact only striving to achieve my best grade compared to the absolute best score. What other students are doing gradewise does not affect my grades.

Can someone logically explain to me why trading is competitive? Why do I have to "lose" potential profit in my trading business and ability to make a living if the pros or others are succeeding using their wealth of tools, computers and information and staff?

If the actions of all these other traders and institutions don't affect my potential, then why is the competitive aspect so frequently mentioned on a broad basis in trading literature? I feel like SW vendors, book sellers, trading education services, just above everyone is putting pressure on traders to be competitive and I think this is causing stress for those of us in this profession. I am willing to accept the stress if there a valid reason for this. Otherwise, I would just like to relax and know that we can all profit and I can ignore what others are doing.

When you make a dollar on a trade where does it come from?

When you make a dollar in any business, where does it come from? Why does it matter? I don't see how this is relevant to the question at all.

G'Day sbuxfan,

I'm no expert but I don't really consider trading to be that competitive, it's just that some people have gained enough knowledge over the years and are sufficiently capitalized to pull a profit without raising a sweat.

Regarding your comments about "SW vendors, book sellers, trading education services", they only exist to sell their own products, not to ensure you become competitive and profitable.

sbuxfan said:

When you make a dollar in any business, where does it come from? Why does it matter? I don't see how this is relevant to the question at all.

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sbuxfan said:

As an example, what the other team does affects my teams strategies and whether I win or lose.

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Mate it is a big game of pass the parcel. To win a trade you have to buy something low and sell it higher. To do that someone has to give it up cheap initially and then someone else has to buy it back latter at a higher price.

Now both on the other side don't necessarily have to be "losers" but sooner or later someone in the chain will have to lose a dollar for every dollar won.

And on the second quote what others are doing in the market effects what you will do in reaction- ie a price breakout by others = you buy, as an example.

Trembling Hand said:

Mate it is a big game of pass the parcel. To win a trade you have to buy something low and sell it higher. To do that someone has to give it up cheap initially and then someone else has to buy it back latter at a higher price.

Now both on the other side don't necessarily have to be "losers" but sooner or later someone in the chain will have to lose a dollar for every dollar won.

And on the second quote what others are doing in the market effects what you will do in reaction- ie a price breakout by others = you buy, as an example.

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If there is a continual expansion and addition of NEW money into markets is this necessarily true?

tech/a said:

If there is a continual expansion and addition of NEW money into markets is this necessarily true?

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Most don't survive long enough to see the "continual expansion and addition of NEW money". But in any case new money can, or more than likely is, lost to old money.

Trembling Hand said:

Most don't survive long enough to see the "continual expansion and addition of NEW money". But in any case new money can, or more than likely is, lost to old money.

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What I had in mind was /is the continual addition of Superfund Money.
Ever expanding.
More so than individual punters.

tech/a said:

What I had in mind was /is the continual addition of Superfund Money.

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It still didn't stop the drop from 6800 to 3100 (XAO). Its still no good holding the parcel when the funds turn the music off.

sbuxfan said:

Most books on trading state that the professionals are better capitalized, have better tools, systems, staff and as an independent trader I am competing against them. What does this really mean? How can I suffer in my results or ability to succeed if the pros do good in their trading?

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There are hundreds of ASF users on-line yet few want to give reasoning, if not at least 2 cents. Don't be shy folks.

From my plebeian perspective, a take on why trading is competitive ....

Time enters the equation where price direction is concerned and the individual/teams time frame is a critical factor in the following cases.

If you go against the price direction the majority of money is moving to, then you are on the losing side.

If you go with the price direction the majority of money is moving to, then you are on the winning side.

Everyone is competing for the price to go in their favour. You want the price to rise but more sellers want to sell at your price or lower. You will lose.
You want the price to rise and more buyers want to buy at your price or higher. You will win.

Optimist v pessimist v realist; an eternal battle.

Trembling Hand said:

It still didn't stop the drop from 6800 to 3100 (XAO). Its still no good holding the parcel when the funds turn the music off.

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Yeh but everyones holding the parcel at the same time.

I dont think trading is competitive---well atleast from my perspective.
I dont see business as competitive either.
I just work on my own game and the rest comes.
Others in Business however attempt to compete in my field using us as a benchmark.

I dont know but I have found when I'm confident in what I'm doing
I dont feel Im competing with anyone.I'm just refining.

tech/a said:

Yeh but everyones holding the parcel at the same time.

I dont think trading is competitive---well atleast from my perspective.
I dont see business as competitive either.
I just work on my own game and the rest comes.
Others in Business however attempt to compete in my field using us as a benchmark.

I dont know but I have found when I'm confident in what I'm doing
I dont feel Im competing with anyone.I'm just refining.

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Your refining the benchmark whilst I'm deluded . Why do you even post here ? Do you like to share your knowledge or is it something else . Im betting the probability (delusional i know) is the latter . defining the latter is the question im having trouble with . i think i will go back to being a lurker now .

have fun you guys

ginar said:

Your refining the benchmark whilst I'm deluded . Why do you even post here ? Do you like to share your knowledge or is it something else . Im betting the probability (delusional i know) is the latter . defining the latter is the question im having trouble with . i think i will go back to being a lurker now .

have fun you guys

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Sorry I dont understand.
The above is simply my opinion.
You have taken both posts as personal slants--strange you are not the point of my musings.

Enjoy your lurking.

Don`t know how much travelling people have done, but you only have to go to a market in Asia, Istanbul, downtown Paris or even Melbourne! and strike up a bargain and they`d be all different scenarios. Most poorer countries expect it. and the thrill is knowing that you don`t pay the price scribbled on the ticket but you haggle.

It`s part of understanding the culture.

Shares are the same. Some don`t understand that sometimes we see goods for sale and think beauty this looks a bargain and buy without seeing that the colour fades or the warranty wasn`t long enough but wow these wont last long because this is all that`s left.

So another sale is made until the poor unsuspecting `Geeze I got a bargain here` realizes that what he bought doesn`t fit or doesn`t match the wallpaper or carpet. And so on it rolls.

Boy`o`boy he decides, I`d better not clog up the spare room here too much, better sell cause it`s only clutter things up.

Hence was born the share GARAGE SALE, and it just proves that the pavement is littered with things people want to get rid of, ready for people who have no idea but still want to take on board things, even if they dont realize it, they can still feel comfortable knowing that that a small stallholder in Asia or Istanbul got that little bit more wealthy, cause you can bet he is licking his lips because of it.

Ones loss is anothers gain.

ginar said:

Your refining the benchmark whilst I'm deluded . Why do you even post here ? Do you like to share your knowledge or is it something else . Im betting the probability (delusional i know) is the latter . defining the latter is the question im having trouble with . i think i will go back to being a lurker now .

have fun you guys

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That's a pretty rude post.
My understanding of Tech's post was that he meant he was refining his own systems/approach.

Rather silly of you to suggest he was attempting to 'refine the benchmark'.

Isn't it up to the individual to decide if he/she wants to be competitive?
I often hear people compare their own results to an index.

I'd say it's essentially a matter of one's personal financial situation: i.e. if you have more money than you're ever reasonably likely to use, you're not going to NEED to take risks in the hope of increasing your asset base.

So why would you need to be competitive?

Plenty of people in this situation will not even be interested in the market other than owning a basket of blue chips, alongside cash sitting in the bank.

Personally, as long as my capital can generate what I need to live on, plus say 20% p.a., I don't care how that compares with what anyone else is doing.

Why is trading competitive

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The answer to this is based on the widely publicized figures that 90% of all traders lose in the long run. Their money goes to the other 10%. Whether that statistic is accurate or not is immaterial ( I personally think the figure is higher than 90% losing).

What matters is that we are playing a negative sum game (after brokerage).

You can only win if others are losing. Just because you don't see or know who are losing, does not change the fact. If you are comfortable doing what most traders do, the results will probably line up with most traders.

brty

sbuxfan said:

I would like for someone to explain to me why trading is a competitive business.

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I think it is competitive on many levels. Here are several practical examples...

- You compete with institutional investors who have better resource, information etc. e.g. You are researching a small miracle drug company and obviously want to buy it before the share price rises. So you are competing against others (in time and accuracy) in validating the potential value of such company and buy before the price got bid up by an insto specialising in small biotechs.

- You compete with other traders to open and close positions. Big news come out on some company and everyone heads to the exit... it's a competition straight away to see who can get out at a better price given the quantity of demand. Same with entries - just read the MEL thread and see what happened on the day some newsletter recommended the stock. Those who got in the fastest made a profit, and those who got in late probably suffered a loss. Same with reading and trading chart patterns, analysing latest profit results, getting shares in a discounted cap raising etc etc.

It's one thing to see trading as competitive, it's quite another to decide whether you need to formulate some sort of competitive response. E.g. you know XYZ is announcing drilling results tomorrow and is deciding whether and when to buy it. Because trading is competitive, share price will go up on a positive outcome, leaving less potential profit for you. As a result, you need to do the analysis today so you can make informed decision tomorrow as quickly as possible. Or you may even decide that you can't afford to wait for tomorrow, and have to take a punt and buy today. These are your competitive responses. For without competition (of traders entering the stock in this case), you will simply wait for the announcement and make decision afterwards.

So imo all traders are doing things that are in fact influenced by the competitive nature of trading, even though they may or may not be fully aware of it.

Okay, good discussion. Perhaps I'm still missing the point or I didn't ask the question in the right way.

Let me re-try.

If I have a profitable system which I am using for my trading business and a process of updating and/or creating new systems as the markets change, why would it matter to me that (1) others are better capitalized, better tools, etc. and (2) my source of profits comes from someone else in the same industry.

In other words, what would I do differently based on items 1 and 2 being true than I am doing today?

I am thinking that I would do nothing different, hence it really doesn't matter what others are doing or what tools are being developed. So even if trading is somehow "proved" to be competitive, does knowing this "fact" alter anyone's own business plan?

Every successful trader that has posted here seems to be further proof that the competitive nature of the field is not relevant.

Sbux -

I agree with what you say.
The only 'thing' you are competing against when trading is yourself.
I have been doing this for over 25 years now and its as clear as day.

Cheers

Grep

sbuxfan said:

Every successful trader that has posted here seems to be further proof that the competitive nature of the field is not relevant.

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