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Automated Trading Is Gambling

  1. So i found that the variables and variances should be gambling.Interesting to hear from those who found the same.
  2. Automated trading is mechanical trading and is very much like gambling. This in the way that you should try to become your own house. In order to do that, you need to follow your system without question, and that comes with its own pitfalls of being wrong even if the stats indicate you "should be right". Also, mechanical rules may make you miss better opportunities that the system just doesn't catch onto, so it may have worse performance than some form of discretionary trading. It's very hard to make steady returns using mechanical rules, as markets ebb and flow, so may drawdown and pnl.
  3. Many, many billions have been made by Renaissance Technologies via full automation.

    I have a hunch most ET posters are not on their level, though.
  4. any trading is gambling, so what?
  5. Just a hunch?
  6. All trading and investing is gambling.
  7. Is it gambling if you always win?
  8. When you make bets or take risks,
    with Gambling, the odds are against you,
    with Investing, the odds are with you, and
    with Trusting your luck, you don't have a clue about the odds.

    How automated trading or un-automated trading should be categorized probably depends on the trader .
  9. Almost all businesses are gambling as well. You could extrapolate that as "any job". If you die in a car crash on your way to work, didn't you gamble with your life?

    There's a different definition of gambling as well:
    take risky action in the hope of a desired result.

    That's not professional trading, hope isn't a factor. Hope is involved in a dice game where the player is just hoping for certain numbers without any chance of affecting the result and having no statistical edge.
  10. Billions on billions is good of course,but you`ll never find a 100-1000% return in automation,though,which you can find plenty in the discretional trading world.
  11. Wrong.
  12. Well, apparently, Wikipedia defines: Gambling is the wagering of money or something of value on an event with an uncertain outcome with the primary intent of winning money or material goods
    To invest is to allocate money (or sometimes another resource, such as time) in the expectation of some benefit in the future
    Sounds pretty similar to me :)
  13. Definitions of Gambling:

    1. Play games of chance for money; bet.
    2. Take risky action in the hope of a desired result.

    There is nothing wrong with gambling per se. What is wrong is risking money when the odds are not in your favor.

    Many years ago when I was in college, I had a hallmate who got in legal trouble (drunk driving) and needed to raise $2,000 in a hurry to hire a lawyer. He asked me to borrow $200 so he couple make a bet on horse racing to raise the money. I told him that gambling to raise the money was a crazy idea. Well it turned out that during the summers he worked as an exercise rider for horses and did in fact know people in the industry. So I loaned him the $200 and gave him another $100 to bet for me. The horse came in next to last. I was furious, but he told me that word had gotten out beforehand, and driven down the payoff odds, so that the trainer told the jockey not to try to win. The next week my friend came back and asked to borrow another $200 to place on the same horse, because his friends assured him that the horse was ready to win. I loaned him the $200, but this time no bet for me. The horse won going away. My friend paid be back the $400 total, but I lost out on a big payday by not having a bet this time.

    I learned two valuable lessons. 1) Never bet serious money on horses, since a lot of it is rigged; 2) Only risk money when the odds are in your favor, whether by probability, insider information, historical data, arbitage, etc.
  14. Risk and return - what differs the two.
  15. LOL. My first lesson in arbitrage, risk and risk management was based on gambling. To make the long story short, back in college I tried to arb two football bookies (different dormitories) against each other only to have one of them default when I tried to close the arb.
  16. I don't say this often but this post should be required reading. Very well said.
  17. I think the term gambling has a natural association with playing a game of chance where skill is not the primary determinant of the outcome and has a negative expectation.

    ...most people think of casino games and most would say the casino visitors are gamblers, yet they don't call the house gamblers, instead they are running a business. Expectation is the differentiator.

    ...but this is all semantics, not gambling or trading:)
  18. This forum post made me recall a recent Vegas documentary I just watched:

    The Player: Secrets of a Vegas Whale (2014)

    It's a good documentary...talks about blackjack, casinos, whales, 2008 housing crisis, wall st, trading, odds, strategy, etc, etc,

    There's a few parallels you can make between trading and Don Johnson's blackjack success story,
  19. hope is always a factor,

    the difference between the professional and amateur: one has hope and the method with probabilities in his favor , the other one just has hope...

    but both hope to win making risk bets
  20. Hope is similar to faith, in that many people mistake belief for faith. Faith doesn't require any belief. It is in fact lessened by limited beliefs, or so-called facts. In its core faith is about that inner conviction to persevere and trust in something bigger than oneself, even when it's just mutual trust.

    Hope also has a core of truth, and is indeed almost the same as faith. Hope is that inner strength where no matter how bleak and dark it gets, one remembers that after rain comes sun. So it is both a kind of faith in that events tend to turn around, but also from experience, some wider perspective of having lived through many such cycles already.

    Faith and hope can both be a source of integrity (honesty), willpower (determination) and strength (value).

    However, when faith becomes limited by beliefs or hope becomes limited by dependency and helplessness, they may by mistake become a source of weakness as well.

    The difference is Knowledge, and applying it in day to day life.
  21. i see a bit different in this case

    the opponents of word gambling in case of trading imply that traders do not hope...

    but what are they doing?

    they are hoping... that their method will work... one may call it expecting, but those expectations are also hope

    we are gambling and hope all the way throughout all our lives... people just do not think about it, that all our lives are just set of different probabilities which we hope will realize in our favor... no guarantees anywhere :)

    and the knowledge is only knowledge of probabilities, based on laws of nature

    like there are enormous probabilities that the sun will rise tomorrow,.. but no guarantee

    actually any guarantees are also based on hopes :)
  22. Trading is much more objective than typical forms of gambling. I wouldn't regard trading and investing as gambling. Gambling is where the odds are stacked against you, whereas with trading, the odds are stacked in your favor if you're logical and rational.
  23. "You won't find it on Investopedia"
  24. It's an interesting documentary. Thanks for posting. In summary he went big when odds were in his favour.... plus hired the odd porn star to distract the dealer. Nice trick :)
  25. Yes if you are the house.
  26. One type you described is rather likelihood and has a basis to expect something by applying knowledge and logic.
    The other one has nothing to support it.

    I can't say it makes sense to describe both with the same word.
  27. It's not gambling if there's a definable edge.

    Gambling imo defines an uncertain outcome.
  28. It`s not a philosophical question.
  29. People appear to associate a negative stigma to the word gambling when it comes to trading, maybe having a belief gamblers are society rejects and addicts out of control.
    I systematically trade, have done for decades, and imo, I gamble on every trade, not much different from trackside horse gamblers they study the form guide and place their bets. As well, I'm hooked on trading, everyday I study it, 7 days a week, year on year.
    If someone called me a gambler, I would look at them quizzically and say "so?"
  30. Parimutel wagering, poker and even blackjack do not have odds stacked against you if you are a professional player.

    Same thing can be said about the market.
  31. Then it's not gambling if you're also profitable over the long-run.
  32. wow, did you figure that out all by yourself, or did you google it?
  33. It's my rational interpretation.
  34. What is your definition of gambling?
  35. Not the same as Google's, it's too general and doesn't take into consideration objectivity/subjectivity, expected outcome, odds, probability, certainty/uncertainty, long run, short run.

    I think my previous posts indicate how I've defined it.
  36. So gambling, according to you, is losing over the long run?
  37. ....so when losing therefore a loser gambler and when winning a genius.
  38. You're sounding a bit insecure about your earlier post and comparison with horse racing. Yes, I had a good chuckle at that.
  39. well you made emphasis on hope in definition on gambling , and I just explained that everybody is hoping regardless what is the basis for that hope.

    imho when people talking about gambling as an opposite to non-gambling what they usually imply ( sometimes without realizing it ) is that gambling has quite high probabilities for person to loose....

    most people operate in the in environment where odds are overwhelmingly in their favor (still gambling) , so they even do not think about it in terms of probabilities

    that is why for the average Joe only casino or trading is gambling
  40. nothing is wrong with the philosophy, since it is the foundation for proper assessment of the life itself

    in our case - the life of a trader
  41. %%
    Good points, Love TTrade, many internet definitions are made up nonsense. I asked an old REALTOR friend about a buying a specific lakefront house, for resale/profit ?? He said ''that would gambling [meaning stupid risk]'' I thought to myself, that is not really gambling , so i said ''why??'' REALTOR said that lake house has been moved . So it was not really gambling, but it would have been a stupid risk. Strangely ,several years later, a flood broke the dam on that lake, dry as bone... ..:caution::cool:
  42. Its not difficult to find a simple strategy that is profitable provided that trading costs (commission, spread and slippage) are small enough. In that respect retail traders are at a major disadvantage compared with pros.
  43. Actually, exactly the opposite. Your comissions might be higher, but your liquidity requirements are lower by orders of magnitude. I can think of numerous cross-sectional strategies where as a retail trader it would be easy to achieve Sharpe of 1-1.5 after transaction costs that are simply impossible for an institutional trader.
  44. %% But many local sherriffs + police know the difference; try card counting in a casino + they will help you OUT so to speak LOL.

    I gambled for quarters[00.25] in a pool hall as a kid. OOps, sorry i just gave away a price level LOL. Some people use gambling meaning stupid risk.....:cool:
  45. Are you asking or saying? Because trading itself is gambling and auto trading is no different.
  46. It`s a statement.i`m taking all the responsibility for that statement.Automated trading is pure gambling, so the variables are just.I found that the dice game variables are the closest that may have some success in autotrading.You are free to prove me wrong,though.Its my humble opinion and what i`ve found over the years of playing with the automation.
  47. Automated trading is only possible if you apply some gambling theory to it.Period.
  48. There`s WORLD between auto and discretionary trading!
  49. Cross sectional momentum over a longer time period (1 yr), market neutral?
  50. Not sure what you mean, but yes, longer hold strategies. Usually in equities or credit (i.e. bonds or preferred stock).
  51. I just mean momentum strategies across a large group of equities. I had to look up what cross sectional meant and I found a description on AHL Man's site. They separated momentum strategies into "cross sectional" and time series momentum (basically trend following)>
  52. Ah! Cross-sectional more or less means that you achieve statistical significance by increasing the number of assets instead of increasing the trading frequency. As an example, when the guy is dating 5 girls at the same time, it's a cross-sectional strategy.
  53. When one trades mechanically using mathematics over a period of decades, and keeps data over the same period,
    and statistically outputs the same positive results over the said period of time, its not gambling!
    It is called "The Exploitation of Statistical Accuracy."
  54. Yeah, it`s like using your signals for the mechanical system and then you just turn them upside down for the automation.