Discoveries by cognitive scientists on randomness and human psychology and the increasing use of technology by casinos as well as stock/futures markets to manipulate individuals are just yet another reason why all trading teachers should have to go through a mandatory third-party vetting of their P&Ls over a multi-year timeframe, to show that consistency in day trading is nearly impossible with such a large distribution of data. "Psychologists who study how the human mind responds to randomness call this the gambler’s fallacy — the belief that on some cosmic plane a run of bad luck creates an imbalance that must ultimately be corrected, a pressure that must be relieved. After several bad rolls, surely the dice are primed to land in a more advantageous way. The opposite of that is the hot-hand fallacy — the belief that winning streaks, whether in basketball or coin tossing, have a tendency to continue, as if propelled by their own momentum. Both misconceptions are reflections of the brain’s wired-in rejection of the power that randomness holds over our lives. Look deep enough, we instinctively believe, and we may uncover a hidden order. Recent studies show how anyone, including scientists, can be fooled by these cognitive biases. A working paper published this summer has caused a stir by proposing that a classic body of research disproving the existence of the hot hand in basketball is flawed by a subtle misperception about randomness. If the analysis is correct, the possibility remains that the hot hand is real. Gamblers, with their systems and superstitions, sat nearly immobile at video slots, trying to outguess the algorithmic heart beating inside. They were immersed in what the anthropologist Natasha Dow Schüll calls “the machine zone.” In her book “Addiction by Design,” she describes how modern slot machines are engineered to maximize “gaming productivity” — the velocity with which dollars fly from the players’ pockets. Mechanical levers have been replaced by faster, more efficient electronic buttons, while the simulated reels of cherries, bars and other symbols are programmed to give the illusion that you missed a jackpot by just a hair — fuel for the gambler’s fallacy. But often the patterns we see are illusions. Some research has suggested that more excitable people are likelier to embrace the magic of the hot hand (go, go, go!) while those with “higher cognitive skills,” as the studies put it, are prone to the gambler’s fallacy — the belief that a run of heads will probably be followed by tails. Their swaggering brains think they have psyched out the system, discovering an underlying regularity." http://www.nytimes.com/2015/10/18/s...-region&WT.nav=opinion-c-col-left-region&_r=0
Depends on how you play the market. If you play the market like a slot machine, your results are gonna be similar.
Long periods of certain market behaviours (like low volatility) create imbalances that ultimately do get corrected. The markets are not completely random although there is a lot of noise to make them look that way.
Well said, and for your information you can also make money from random periods in the market with the right strategy
an interesting thread. There is definitely money to be made in trading and business analysing why humans do what they do and positioning yourself accordingly. I once knew a business man who told me people either did things out of fear, greed or vanity. He said if you can hit 2 out of those you have got something people will buy, some products services even hit the magic 3. In addition to to this humans or a generous subset of them are prone to addiction. So coming back to the slot machine example from the OP these people are addicted to random rewards. There is some chemical in their brain that is being produced when they know they are going to get a random reward and they like the feeling hence they keep feeding the machine. In a way this addiction is no different to smoking, drinking or taking harder drugs. In one you pay with your pocket (go hard and you will pay with your health), the other you pay with your health+pocket. It would be interesting to interview a sample of slot addicted people. I would imagine most of them know that they are playing a negative sum game and over time they will lose. i bet most of them just enjoy the feeling of playing and delude themselves that the 'next big win' is just around the corner. There are a lot of parallels to the retail trading business. A dealer based CFD company 'bucketshop' is similar to the fruit machine owner. A large subset of retail traders are addicted to random rewards, some may know it and see the cost as an entertainment expense. Many others will be deluded and think the 'next big win' is around the corner. The people who seem to stay in the trading game are the ones that play the 'house' and take the punts of the retailers and utility traders. Whenever I see people on forums saying anything like 'this is the big one' or emotive stuff like 'it guaranteed to go down to x' its obvious that person is very likely a losing/deluded trader. Another red flag is when someone stakes an amount that will seriously hurt them on one trade. To me that is subconciously someone who wants to lose, they are basically saying to the market, come and take me down. Literally like a white man walking through Compton and greeting everyone 'whatsup Ni*****', it's going to end badly. GL
If you believe gambling and trading are the same you should stop trading. Probably those who always speak about randomness can explain why the facts, that are real and undenibale, in following posting do not appear to be random. I copied this posting here to make it easier to read. http://www.elitetrader.com/et/index...analysis-seriously.294703/page-7#post-4187020 Maybe the following is undeniable proof that markets are not random, and this implies that TA can work: 1.If you throw a dice, the smallest possible value is 1 and the biggest possible value is 6. Each time when you throw, the value will be at least 16.7% of the previous one (from 5 to 6) and maximum 600% (from 1 to 6). So the outcome from the next throw will be between 16.7% and 600% different from the last throw. This is a huge range. 2.If you take all the closing prices from the s&p since 1/1/1950 (16544 days of data), then we see the following: The closing price from any day is always between 91% and 111.5% of the previous close. There was only 1 exception on that: 19 october 1987, when the markets crashed. Then it was 79%. If prices would be random the value should vary between 0 and infinite. This is clearly not the case. The prices even stay in a very narrow range. Even if we would narrow the random range to 0 till 200%, the real values use only 10% of this range. This creates a very high probalitity, which is never found in real random data. Here TA comes in the game. For 65 years the price never dropped more than 10% and never rose more than 11.5% from one closing to the next one. If you throw a dice the only thing that is sure is that the outcome will never be more than 600% whereas in trading the outcome will be between 91% and 111.5% of the last close with a VERY HIGH probability. The range of about 20% is also much smaller than the range for throwing a dice which is almost 600%. I am interested in the explanation why moves in a limited range can happen over a long period and still be random. Not a single quote was outside a 91% to 111% range of the previous quote. In randomness the quotes should jump up and down between zero (because that's the lowest possible value) and infinity. You even see the quote go up and down continuously in blocks of consecutive rising or descending quotes. Is that still random? Gambling has nothing to do with trading.
there are parallels between subsets of players in both industries. Of course consistently profitable trading is very far removed from addicted gamblers at the slots. The good news for pro traders is a whole new generation of dumb money is constantly coming down the pipe. It's sad but a whole generation of people now wake up to facebook to check how many likes they got.
Q3D, We all know there's a psychological aspect of the markets itself. Yet, your consistent (bizarre) belief that trading teachers are require to do something when other traders are not is just strange. I highlighted the above in your quote to show what this really is about and I removed all the other stuff to show its your attempt to hide what you're really trying to say. 1) Your lack of understanding of your own responsibilities as a trader (e.g. knowing that trading can cause losses or is risky) is not the responsibility of others even though their disclaimer statements clearly tell you that "trading is risky", "you could lose money", "only trade money you can afford to lose"...its your responsibility to read those statements. All brokers, data vendors have those statements...didn't you read it ? 2) Yes, your CQG and your broker use advertisements, subliminal messaging, emails, phone calls to encourage you to stay involved in the markets and continue using their services. They will often create new technological products and product upgrades to keep you as a client. Almost all businesses do the above. Heck, I was in the grocery store yesterday and all items with "discounts or on sale"...had big bold fonts in comparison to other items that were not on sales. I also notice that the grocery store has this new technology bar code scan that you can use for your mobile device to get recipes of the product you're selecting along with naming other items you need to purchase to make that particular reciepe...very clever use of technology and marketing to get you to buy more at the grocery store. Manipulating that human psychology aspect about us when we shop. Why do you think they put all the candie bars, gum and small items less than $2 dollars next to the check out ? Marketing and manipulation. 3) Brokers, data vendors are setup in a way to encourage traders to trade OFTEN and to encourage traders to get back at it (re-load) their accounts after blow ups. They will call you if they notice you''re not as active, they will send you emails if the same happens and many other things. Its their job to do such. 4) You meant to say all traders should have to open their account records to show that most traders are not profitable. Its impossible to come to that statistic via only looking at trading teacher. Yet, we know why you're still slipping in those words "trading teacher" even though we keep telling you its your responsibility to know that most traders are not suitable for trading prior to their first trade, most traders will not be profitable... That's a well known fact and we don't need to do a mutli-year statistical analysis to know something we already know. Simply, only a small percentage of traders will be profitable and that trading itself is very risky business even for profitable traders. P.S. The next time you enter any type of store...ask yourself this. Do you need to buy this item and was that decision made prior to entering the store ? Something to seriously think about especially if you're someone that tends to make emotional purchases...something that often causes financial problems. P.S.S. There are better psychological articles about traders and the aspect of trading that shed a ton more light on why most traders fail. Its that psychological stuff that really only a psychologist can educate someone that results in real application because if it comes from someone else that's not a psychologist...its info into one ear and out the other ear.