Paradox?

Discussion in 'Psychology' started by Urkel, Sep 18, 2006.

  1. Urkel

    Urkel

    "Here's an interesting paradox. Casinos make consistent profits day after day and year after year, facilitating an event that has a purely random outcome. At the same time, most traders believe that the outcome of the market's behavior is not random, yet can't seem to produce consistent profits. Shouldn't a consistent, nonrandom outcome produce consistent results, and a random outcome produce inconsistent results?" - Trading in the Zone/Fisher p.102

    Discuss
     
  2. The events at a casino are far from random.
     
  3. Casino activity and gaming v. markets is apples and oranges my friend.
     
  4. Urkel

    Urkel

    try again:) thinking outside the box
     
  5. The casino represents your broker in the analogy.
     
  6. Casino has a mathematical edge that never changes. I think its 5% for roulette.
     
  7. Casino game results follow a normal distribution with rules that give them a small edge. No trading system I have ever seen has a true normal distribution. They tend to have fat tails. Since trading systems do not have a normal distribution, it is much harder to predict an average gain/loss per trade over millions of trades. The law of large numbers does still apply, but the mathematical models that rely on a normal distribution are not entirely accurate.

    -Raystonn
     
  8. Raystonn,

    A truly coherent reply - well said!

    The only other thing I'd add is that games (roulette, blackjack, poker, etc) take place in a finite universe (52 cards only in the deck, etc.) which makes the odds calculable. THe market does not represent a finite universe.
     
  9. For what it's worth; profit, loss, edge and time exposure in gambling are defined by the rules of the game(except blackjack & poker). In the market, those four things are variable.
     
  10. Price behavior of a security might show 99 % disordered price behavior and 1 % ordered price behavior (sometimes called a trend). The ordered part may only appear occasionaly, perhaps once a year. Trading results could vary depending on the timeframe and method used.
     
    #10     Sep 19, 2006