Books about trade management & game theory???

Discussion in 'Risk Management' started by WCAG78, Jun 3, 2008.

  1. WCAG78


    Hi there,

    Can anyone please recommend some books about trade management & game theory?

    As for books about trade management, since I do not use mechanical methods, those focusing on the mechanical / computerised area may not be preferable.

    As for books about theory, I am looking for one for a beginner. I still remember a little about it from my economic classes at university, but just a little.

    Recommendations from personal experiences are really appreciated. Thanks a lot.
  2. Game theory is pretty heavy, but understandable after a while... to begin with, check out out "the mathematics of gambling" by Ed Thorpe... there are plenty of free torrents of this title... also, someone recommended this book a while back really good, more UK oriented but worth the read... you'll definitly learn something about trade management.... just paaing on the recos

    All the game theory searches on amazon will bring up the good and the bad, go with the ratings and reviews...
  3. I have done a fair amount of reading on game theory and herein lies the problem with using it with trading as I see it.

    Game theory, specifically from gambling assumes a fixed number of cards in a deck for most books and articles I have read, a constant.

    In trading there is no constant, volatility is always changing and there is no finite number for sample set, it's whatever one chooses. There is a good read on it on wikipedia describing the exact problem in detail, just can't find it at the moment.

    Post edit: Now that's not to say one shouldn't look at some historical trades to at least get an idea of probabilities but it's important to consider the give volatility of the market when one if looking at samples trades.
  4. There is a brief article applied to trading in recent issue of trader's world.

    Worth reading IMO.

    " Game Theory for Winners

    By Joel Rensink

    “In terms of the game theory, we might say the universe is so constituted as to maximize play. The best games are not those in which all goes smoothly and steadily toward a certain conclusion, but those in which the outcome is always in doubt.”
    George B. Leonard

    Welcome to the greatest business and “real” opportunity left on the planet, the futures and forex markets. Knowing a little unique information – for sure – and being able to act on it profitably – has never been as possible or lucrative as it is today. A prime opportunity is unfolding today as I write this, and it will probably be possible for you to profit from it by the time you read this.

    Right now, we have more products for trading available, futures contracts, options on contracts, futures index products, and forex trading banks that cater to smaller capital--- than ever before!

    The things the world’s inhabitants need most; food , shelter, money, energy and systems that facilitate life in this 21st century all require what futures and forex traders deal in for price discovery and profits. All it takes is discovering “real” values consistently before the majority of other participants. And acting on the information appropriately."

  5. Mschlau


    Game theory is an extensively difficult subject, even if its basic concept can be simply stated and structured. To be used/applied to a complex structure like trading (if at all possible) will be an immensely difficult task. If you are truly willing to put in the effort I suggest you start by reading up on the prisoners dilema and then focusing on the studies of Robert Axelrod. Afterwords.... and this will probably be more geared towards your ends, you would do well to start researching the closely related biological studies on reciprocal altruism. I beleive Dawkins had some very interesting insights into this phenomenon in his book 'the selfish gene.'

    If you want some more serious help with the subject, feel free to PM me.
  6. Trade Your Way to Financial Freedom
    by Van K. Tharp


    This book will teach you how to understand Expectancy, Manage Risk and utilize the Law of Large Numbers (among other things) to assist you in your trading.

    All of these factors go hand-in-hand with understanding and dealing with the psychology of risk.
  7. How can Game theory help in trading?
  8. sjfan


    I'm going to have to go with this opinion. I studied game theory on a PhD level... Game theory is a framework for understanding how one or more players interact with each other under a set of rules (which can be different for different players)... Anything except for fairly simple rules and small number of players (in most cases) will quickly become difficult or impossible to solve... I can't see how it can be apply to "trade management" in so far as position sizing, etc are concerned...

    For things like algorithmic trading and information revealed from market maker actions - it has some uses... but it's difficult to apply.
  9. MGJ


    sjfan I think you're a tad too pessimistic. I think even chapter 1 of an introductory book on game theory can be useful to traders. Simply being exposed to the idea of a "mixed strategy", as defined in game theory, can be an eye-opening experience for a trader. At least, it was for me. It suggests all kinds of new trading ideas that are back-testable.

    But then, I found trading wisdom in a 1965 book written for advertising people, for crying out loud (link) so perhaps I am not the most unbiased of observers.

  10. Not sure I can explain practical applications, since as you said the variables become rather large quickly.
    However, I think it does serve to explain a lot of the way wall street works behind the scenes (unfortunately, we peons are trickled down distortions of real information).

    There are some good reference books from acadamia and models on how different types of exchanges interact, but then again they are using models for information, not real order flow.

    I believe that tit for tat is just as valid in the markets as it is in politics.

    Goes back to an earlier assertion I made in a post on chess. If grandmasters are so great at strategy, why don't they apply their skills to markets? Wouldn't it be a perfect place to apply their skills (in fact, if TA pattern recognition was so reliable, one of their greatest skills is having a strong memory of prior pattern formations and outcomes)? Yes, if information access was on a level playing field, patterns were reliably repeatable, and the system was closed and stationary.
    Chess players are not known to be socially cooperative strategists.

    Wall street, much like politics, tends not to benefit those out of the "loop."

    I've harped on this for years, but IMO quality of information is exponentially better than processing of information.

    I'll take an 8088 processor with specialist order flow, and sample statistics from a large broker's customer accounts, over a multi-processor, AI, whiz-bang computer any day.
    #10     Jun 25, 2008