My answer to the question of the thread is that it is all gambling. The difference is whether you are able to put yourself in the position of the house, and get systematically favorable odds in exchange for offering liquidity. Temperamentally, I agree with another participant who pointed out that the uncertainty in all commercial activity was such as to bring it within most dictionary definitions of gambling, save those which explicitly mention that the bet must be a game. Further, the fact that by opening a position in the market you acquire an asset that can be liquidated puts some difference between you and the person who puts his money on red in the casino. But, of course, all these slightly different equi-legitimate definitions generate a hypercube of concepts of gambling, and you have to follow your intuitions which quadrant matches the concept you have in mind, and whether the activity falls inside it or not. More concretely, Electric's pool-cleaning strategy is interesting. Many of us must have experimented with the idea that the correct way to play the markets is to establish a risk budget together with a methodology such that the only trades that get closed are either profitable or required to meet margin calls. The unsolved problem is whether the currency pairs pool-cleaner strategy is more likely over the long run to generate more realised profits than unrealised losses. If it is like other similar pairs strategies that I have tested in walk-forward simulations, the answer is that it will generate long periods when it is throwing off cash and long periods when it is in draw down. My hunch is that there is no way of knowing, ahead of time, whether an intolerable losing streak lasting a year or two will appear before a comparable profit streak (enabling you to retire). There are very large scale precedents for going bust as a result of systematically running a long volatility position. Compare the Vegas version of 1-card Klondike, where you pay $52 for a deal, and get back $5 per card that is safely placed on the suit stacks. Seems to me that the $5 refunds play the role of realised profits, and the accumulation of $52 stakes plays the part of the unrealised. Strangely, there is no known mathematical solution to this game, so nobody truly knows its expectation. Empirically, the game seems to balance with a realised profit around $7 per card (which is why those terms of trade are not available in casinos), and to have long winning and losing streaks. The equilibrium is thus unstable. Probability of ruin and of becoming rich are both significant.
It's not gambling provided that you understand what you are doing. Unfortunately most traders in my experience don't know what they are doing and so YES they are gambling. I suppose it all depends on who you are and your attitude to the markets and your trading.
growltiger, Interesting comments indeed. Thank you. You have identified your path. Does this make you wrong. No I do not think so. But defining risk perimeters really is boxed in when hedging, if we take an honest look at it. There are two pairs of choices with the illustrated systems... 1)The unrealized goes up...2)The realized goes up. 2) The unrealized goes down 2)the realized goes up. In both of these scenarios note the realized goes up and you have never identified what direction the market must go. As far as the unrealized it just grows and grows and never will shrink again from its max exposure. This is a good thing as it identifies trade siize necessary to survive. The subaccount is for the amount of range that exceeds the 10Y historical max range. The subaccount can grow while getting to the breach also. So this demonstrates as time moves on the "gambling meter" is reduced more and more. Time is actually on your side. Some have compared the ilustrations similar to option stategies, but there is no time decay or expiration to consider here... Rather than to defend these two illustrated systems, please check on the upcoming Journal to prove that trading is not gambling, but it can be if you choose it to be. Also note in a period of 2 weeks we are within $144.00 of parity, and can drastically reduce trade size at will...Which again will turn the "gambling meter down. This is gambling what I made bold below, simply because the string of wins is random. In the illustrated systems the long trade can go to infinity but the short side of it can only go to zero. $52 for a deal, and get back $5
well...for most folks out there...IT IS GAMBLING......but for the very very few...it aint.....remember about some market wizards who are positive for over 90% months of 5 years..and that....is no gambling... ask yourself..if it is gambling in what you are doing......then you are in the wrong business if you do not try to solve this as UNHUMANLY AS POSSIBLE......(i mean.."oh the humanity...as majority will fail/not go that far enough to win this game......) professional gamblers do not gamble..they got odds on their side...calculated risk.... you see anything successful out there? a business? a restaurant? a store? did somebody first attempt to succeed at it? did they gamble too? or did they made a good calculated risk? pros do not hope for good luck to help them in this game.....but are prepared for bad luck if they do happen do michael jordan hope for good luck everytime he shoot the ball? certainly he knows what he is doing....he practice/studied his SKILL so that the odds are IN HIS FAVOR everytime he shoots..... and when/if he missed (bad luck or just not in right perfect condition/situation) didnt he still come back to try again and again later? because he KNOWS his ODDS......as he did his homework and practice hard in reaching this goal.....
marketdancer, Interesting. May I reflect? Your post about Michael Jordan was about talent, indeed. He has practiced and shot the ball about a million times. He has rehearsed the trip to the hoop with tens of thousands of combinations and scenario's. He has worked with his team mates through thousands of passing patterns. His height he was born with, was out of his control. I think that Michael Jordan gambled with his career and lost. He later regretted and tried to re-enter. This is my highly opinionated view and most will disagree, and state that Michael Jordan did what he had to do. I think he could of exited less dramatically. But hey, I have stopped trading just because I have been on top too, but that is when I was gambling and trying to manage the emotions of trading. I believe trading with the illustrated systems can be a way to trade and remove the "gambling" element completely and dynamically. We are not talking about defensive trading. I want to illustrate how to adjust trade size dynamically, based on price action to bring that gambling meter down to zero, while holding the yield as high as reasonable. The problem here is to get the most yield, without trading incorrectly and gambling. Michael Jordan played in 1,072 games, playing an amazing 41,011 minutes and finished his career with 32,292 points, 5,633 assists and 6,672 rebounds. Michael B. P.S. Thank you for taking the time to post. But most of all Thank you for agreeing to check in on the Journal and visit a world that assumes trading is "not gambling".
If the flow of water was filling a "10 gallon" sink at 1 gallon per second, how long would it take to fill the sink to capacity. answer: 10 seconds If the sink had a leak and during this 10 seconds, leaked out 1 gallon per second, how long would it take for the sink to reach capacity. answer: never or infinity Now I say if there was an instrument trading this way, we could exploit it. I am attempting for those of you who wish to enter, "Making Money from flow" to look at the market this way. I do not want to confuse, I am trying to simply twist scenario's to cause some lights to go on. We are viewing a possible scenario above (if you could have all the "leakage" while your hedged price stayed neutral). Now read carefully....If Flow Exceeds capacity, then you would need buckets to bring money home in.... If rates can be measured, then dynamic flow vs. capacity can be calculated in the "non gambling" environment. Capacity = Highest High - Lowest Low = ____ pips Flow = "all the ups and downs every tick in between" See you in the Journal Michael B.
Taking from the market what it gives can be interpreted many ways. BUT if you take the above literally wouldn't taking out the flow be the "pure essence" of the matter?.... I say that flow is greater than capacity (how long it takes to reach and exceed parity is the true quest to manage. Taking profit out of the market does not have to include gambling). Michael B. P.S. These plainly spoken truths is what we build our basis on for the Journal. For the more advanced posters, gamblers and traders out there, please excuse this intro phase. There is a "method to the madness".
View the instruments you trade as a "work of art" View these methods as the Frame you put around it. Michael B. P.S. Have you noticed how a frame can bring out the beautiful flow of the work?
ES, I have tried to read through this thread, but to be frank you have made it nearly impossible to seperate your ADD from the "question" you claim you want answered, which you don't, since you are consistently telling people to "what say you" and then telling them that it isn't gambling. This pollutes your own thread. It also sounds like you are some sort of shill for Oanda, but I don't really know. A more telling title would have been, "I found an edge - what am I missing and what are my risks". In fact in the link that you give to their site you sound more reasonable: http://www2.oanda.com/cgi-bin/msgbo...c;f=15;t=002524 There are lots of structural trades like this in the market. As bignatty pointed out, this is a sort of carry trade. There are tons of ways to do this with different interest carrying instruments, and currency plays are essentially a play of one countries interest rates against another. I am not sure I followed your technique exactly, but averaging down will work when the markets snap back which is most of the time, and will ruin you ONCE. If you think this is riskless and therefore not gambling or gaming (which is irrelevant to you inspite of the fact that you have convoluted this thread to believe that is what you are suggesting you want answered,) I can tell you that one day you will find out yourself as did LTC management. nitro
Do you like to Gamble.... Do you like the freedom it gives..... When the adrenilin Flows, its a euphoria...isn't it... Yes...I know all of this too well. If you are gambling then time is NOT on your side. oh, you will say but the edge....the probabiities....the expectancy...blah blah blah...