Gladiators, Swords, Rolls, and You

Discussion in 'Trading' started by riskfreetrading, Feb 2, 2008.

  1. If you have not realized it yet, trading has a lot of common with gladiating (in case the verb does not exist, let us coin it on ET and spread it to the world "from this place and time" as JFK said once). Wall street is ancient rome, and you the trader is a gladiator. You have cuts to prove it, and hopefully the bankroll of a champion. It does not matter which camp you are on, each day swords are aimed at your head to make it roll.

    You can defend yourself, but in the long run you need a sword with many edges to make head rolls--- the heads of Benjamin Franklin and co that is, on the back of their greenbacks staring at the inside of your wallet which is inside your deep pocket.

    The mantra of the gladiator, the modern that is, is to hit them where it hurts the most: their pockets! The rest is just details.

    For this you need swords with multiple edges. Build the edge of your swords is what I want to discuss and write about here. Hopefully you can join, and tell us a little bit about your battles, you edges, and how you build them. You can toss in there examples of heads that rolled before you, even if you did it just on paper. If Walt Disney can do it and crowds cheer them for it why shouldn't you!

    There are three types of edges (you can subclassify of course and have other types):

    1. The certain edge. This means that your edge will cut your opponent but never cut you, and you are certain.
    2. The probabilistic edge. The one that cuts you and your opponent. But over all, which means multiple fights with your opponent, you end up bleeding less than him, and you win at the end.
    3. The almost certain edge. Is the edge in between 1. and 2. It is the edge that you can rely on and have proof, that with a probability of almost one, you will win on each trade. But it is not certain.

    All the above types of edges exist.

    Now how one can go about finding such edges? Your best friend is: Same causes lead to same effects is a scientific principle. This requires one to think under the surface, and present a logical explanation. Then one uses numbers to ascertain whether or not one has a correct thesis.

    This usually leads to an edge of type 1 or type 3.

    What if you did not have the luck/skill to build a model of causes and effects, or just want to reduce your search time for such solid edges? Answer:

    1. Find correlations between a variable A and a variable B.
    2. If there is a correlation (negative or positive) and this correlation is strong, then B may probably explain (in part or in total) A, or vice versa.
    3. Once you have your correlation, you need to establish whether there is a cause and effect relation between A and B.

    If step 3 does not lead to anything, you are at your own risk to use the result in step 2 to build a trading system. In my view that is what I consider as a gambling trading system. You can win of course, but it is just because you worked things in a way the odds/rewards are in your favor, and not because you really have something fundamental behind your trading. If the climate change, your whole gambling system turns the other way, and you become the gambler and your opponent the house while in your head you are still under the illusion that you are the house. So you have to be sure you are always the house in a gambling trading system. You may also have to deal with the potential moral dilemma that comes with such realization.

    I can go into further details, but i just wanted to provide a framework with the aim to spark things up and with the hope of getting others to respond and contribute.

    I just wrote these comments while taking my breakfast, so please ignore things that are not of your taste such as typos, comparisons you do not like, etc.
  2. you made me think of this commercial.
    CMS Forex. The Arena.

  3. The war analogies, continually perpetuated by the Financial Industry equivalent of those selling 'picks and shovels' to chasers of dreams, serves no purpose for the individual trader. Even in a zero-sum marketplace, the war analogies fail to accurately capture the relationship between market and trader. War, and its ‘battle’ analogy equivalents, engenders the involvement of emotions into the mindset of a trader. One need look no further than the rise in Program Trading to see how many traders have attempted to remove emotion from their trading. No, markets, and the traders who use them, represent a symbiotic relationship, and not, an antagonistic one. Without a marketplace, traders have no job, and without traders, markets cannot exist.

    If one chooses to discard the war analogies, and instead, view all markets from a different perspective, then one has an opportunity to 'see' the individual responsibilities charged to each participant in the symbiotic relationship. The market has its job to do (provide the 'signals' for the trader), and the trader has a job as well (act on those 'signals' - once received). Whatever method a trader chooses to employ in an effort to profit from this relationship matters not nearly as much as learning to avoid the internal daemons of fear and greed and their influence on trading.

    If I have said anything with which you find disagreement, feel free to ignore my post. I wouldn't want to upset your breakfast.

    - Spydertrader
  4. I did not know that traders can inspire "film" makers.

    Also I want to ask traders: what is your edge(s)? Which type is it? How did you develop it (them)?

    I once heard someone say, I go long when my back hurts, and go short when it does not hurt and I have slept well many days in a row.
  5. Spydertraders post is accurate for me, a symbiotic relationship exists btw the trader and the market. The idea of battleing with the market is a noob mentality.
  6. Batteling implies picking a side and fighting for it, if you remain unbiased, then no need exists to "pick" a side but rather wait for the market to provide signals from which the trader can profit. If its the long side, fine. If its the short side, also fine.
  7. Spy: Thanks for worrying about my breakfast! I take other points of view well, and in fact thanks others for sharing them.

    But isn't that the market (in doing its job), chews and spits out any trader who opposes it.? When it moves and it constantly does (just one tick), it chews exactly the same number of dollars and give them (minus commish and spread) to those who do not oppose it. At each tick, there are winners and losers. How could internalize this?
  8. War analogies are harmless and to the contrary add color. It is ignorance to try and displace them as they crop up everywhere in the world of business. They allow the user of such analogies to draw sharp distinctions and their purpose is as practical metaphors in business lauguage.

    However the process of making money from a market is not war action. It is not a war. It is a docile process of syphoning money (your net profits) from the market. You are running a conduit from the market into your pocket. For daytrading (eg CL, YM) you use an accurate methodology to do this as a continuum, Open to EOD. Attention, calm, intelligence and control are appropriate descriptions of this very pleasing activity.

  9. That is a good point of view. And that is not what I meant by batteling, although I understand what you mean. The ultimate trader is someone who has to do ZERO fighting (just pick the winner, side with it and reap the reward).

    But you are left with the problem of knowing which side you are on. Do you know that with certainty? And if not which type of edge you have? How do you develop it? Etc. One has to make sure that he is not under the illusion of being with the winner side of the market!
  10. Words like opposition are exactly at the root of the problem here. Opposition implies there is another side that one must be in constant conflict with. If you remove the word opposition from your understanding of how the markets move, you'll see that it moves because of the collective actions of people. People's actions produce patterns and those patterns can be seen as opportunities. Those patterns either create an inbalance where opportunity exists to sell or opportunities to buy.

    #10     Feb 2, 2008