trader 3.5 knows all you say and takes it into account and still plays even though he knows the long term looks more like one big craps table with the house always winning. To him 2008 is just a number that almost never comes up and since it just hit it is safe to ignore it for a while. Meanwhile all the suckers are betting on it now because it just came up and may be trending and has a huge payout. Trader 4 will be waiting a long time before he comes up with some trading strategy that has no risk of ruin. Most likely he'll end up as a salesman instead of a trader.
the blond was asked what are the chances that a dinosaur will come out from around the corner, the chances are 50/50 - the dinosaur will either appear or not, she answered.... imho OP addressed the question to the wrong people: dead people, since those traders who believed in ability to make a living live off the method that has no more than 50/50 chances in correctly determining direction of the market are long ago dead or dying (as the traders)....
OK, than maybe I should use the word "probability". I get using the correct word is important, no doubt, so let me correct myself. There's virtually 0 probability a dinosaur will come out from around the corner. Just like the probability for a trader with negative emotional trading issues, bad habits, not understanding and using a strategy incorrectly or other factors, has LESS than a 50/50 probability because he's actually using things that are counter productive, therefore that would be a NEGATIVE. It's the same argument as me trying to convince people there's no such thing as an edge. If POSITIVE things can take some traders over the supposed 50/50, than why would NEGATIVE things not take the probability below 50/50.
Let's try this approach. Two guys go to Vegas back in the 1970's and play blackjack. One guy knows basic strategy cold and is implementing the hi/low method as detailed by Thorp in his book "Beat the Dealer". The second guy is an emotional wreck like you described. Gets completely emotional if a quarter falls out of his pocket. Very unstable. Technically speaking as Thorp pointed out in his book, using basic strategy and hi/low perfectly does not give one a positive edge but reduces the casinos edge to almost zero. I believe it was .3. The game itself if played randomly gives the casino a 7% to 8% edge. So if these two guys played 1000 hands each, the guy with the "edge" would probably be down close to .3% on his his money and the emotional basket case down 8%. Should the 2nd guy be down more as you suggest? He is a basket case after all. No. Statistically speaking, his emotions do not factor into the result. Here is something that will make your head really spin. If you had to bet on who had the higher probability of putting the casino out of business on a outsized lucky night, it most likely would be the unskilled player B who could make a fortune, not player A. Why? Because the careful, disciplined play of player A will keep him from losing but will also keep him from getting really lucky and making a fortune. It's player B's reckless play that affords him the opportunity to potentially make a killing in one night. Hence why you can't play against him.
Decent discussion, but as I mentioned at the top guys, we'd like to exclude variance at all from the conversation. With the above example, blackjack player B will wind up around 8% down over time, but because of variance, yes, could come out lucky in the short term. However, I would need to see the math that he would be more catastrophic for the casino. It'd require a certain set of very specific cards and responses from him; couldn't player A just as easily also receive a lucky streak of cards that is catastrophic for the casino, system or not? Edit: I did some conceptual math, and you're right. The Casino's set of plays is all possible sequences of cards, and B's set of plays is all random sequences of moves. Trader A's set of possible moves is defined as smaller than B's set of moves, thus B has more possible intersections of Catastrophic wins, but also losses. However, in order to exclude variance, let's assume for any future hypothetical traders, that they are capable of surviving 1 million trades. Is it possible for their portfolio to be radically different from minus the cost of 1 million trades? Anything besides no implies an "edge," or that it is not random, whatever it is.
Yes, I understand your point regarding the impossibility or at the very least the extreme difficulty in reality to just bet against the bad traders, point is well taken and I won't go into any theory about that as it will not benefit either of us. The stock market is not akin to Vegas in my eyes. Sure you can definitely make it that way if you choose to, but it doesn't have to be that way, that's a personal choice. There are ways to get an edge or a higher probability to win than to lose, it's not a best case scenario get your edge to -0.3%. So even outside that fact, it's also my opinion emotional adjustments will help or hurt your trading, so if two people are using a proven system that makes money and one can't make money using it, he's killing his edge and turning it into a negative. Despite using the same system, the emotional guy can't properly use it, he's at a disadvantage or has a lower probability to be profitable due to his emotions. That's all I am saying at this point. I do appreciate you being civil though and responding. We can just agree I am too dumb for the conversation to make any progress on this front, have no issues with that.
Your claim is that your risk / reward is so good, that you need no edge or at least no other edge to be profitable. To me this is more impressive than someone saying they have an edge via being able to identify patterns in the market. As pinabetal brought up there are absolutely people who can do this. The market is not always a 50/50 random walk. Lastly if you're just applying good risk/reward. How do you know when to exit or take profits? or when to enter? I mean to what degree are you saying this is your only edge is more my question. Literally just throwing down a 3 pt stop loss and 12 pt gain bracket order and waiting for the gains? I am not trying to be sarcastic I am just curious.
OK, let me add one further variable that I think will help. Let's create a series of trades here with two variables. We're going to bet on coin flips, heads or tails but...we're adding a sizing condition. Here is where I think your "emotional trader" will affect the results. See a good disciplined trader or black jack player for that matter will size properly and his/her results should conform to some steady distribution of results over time. The emotional whackjob player though while making random bets, he/she is also randomly varying their bet size, let's say based on whether they took their morning meds. On days where they skipped their medication, their bet size is unusually large. See, this is where the luck comes in. So there are two conditions required to get lucky here, or very lucky we'll say. One, they have to bet heads and be correct which we all agree can happen randomly. But....they also have to get lucky on their bet size. The good trader will likely have very little variance in their bet size. Sure some trades will be a little bigger when they perceive they have more edge. Some will be a little smaller. But the variance around the mean will be small. The emotional nutjob however, will have HUGE variances in their bet size. For example if they get into an argument on ET, they might take out their anger on the market and bet 10X on the next coin flip. What if they bet heads and it is heads? They will have a huge positive outlier. This explains how people can get very lucky in life. Not only do they predict the right outcome randomly, but they also randomly chose a huge bet size that turned out to be correct. The bet sizing variable properly explains how one can get very very lucky and also how they can "blow out their account" while still having only a 50/50 odds of being right or wrong. Again this demonstrates why you can't bet against them. Because they might get lucky not only on the coin flip, but they also might get lucky going all in on size which you would have to take the other side of and pay out. What we can do now is get out an excel spreadsheet. Have it do two things, randomly choose heads or tails and have it randomly choose size. Sum the results and chart the outcomes. You will see a handful of outcomes that produce spectacular results and some devastating ones as well. Over time the end results will be just that, random with some really big tails.