I recently got hired out of college to become a trader at a prop firm out of college. It is a relatively well-known firm, I don't have to put up capital, and I want to learn something new. What is trading about? How do you become a trader (aside from the self-control aspect)? What makes a good trade a good trade? I am a former world-class poker player and I want to know if trading strategy is something that can be broken down into fundamental tenets. in poker, the game is about this: you have a hand, your opponent has a range of hands and you have an idea based on past play about how hes going to play that range of hands, and you decide to take an action that has the greatest expectations given those 3 things. Since its a zero-sum game and everyone else is faced with the same decisions over the long-run, you will profit if you make better decisions (decisions that are based on hand, your accurate assumptions about his range, and your accurate assumptions about how we will play his range). 1. What does trading break down to? Can somebody recommend be books to read, books that do not relate to the mental side of trading? 2. Why does the market keep going up? Why does it tend to increase over time? 3. Is investing zero-sum? If 3 people buy shares of BIDU and it goes up, all 3 gain money? Where does this money come from if investing is zero-sum? Who has lost? 4. I can understand why trading is zero sum, but how do I rectify this with the idea that investing may not be zero-sum? If 3 investors all gain from investing in a stock... can't all traders possibly gain money as well?
I would think if you got hired, they will teach you how to trade their strategy. I would ask them these questions since you would need answers from their view point of trading since there are many ways to make and lose money. Also, feel free to ask some of the other traders at your company. To me, unlike poker, trading is not based on luck. I am not saying there is not skill involved in poker for example reading the other players, using math to determine the probabilities, many of these things are similar in trading. You need to develop an edge that allows you to pull money out of the market or have your company teach you their edge.
poker will do little to make you a trader. you may have money management down, but it is an edge that makes someone profitable.
This smells like a homework assignment. But here's some food for thought regardless. How to answer the question really depends on what type of instruments you're talking about. If you're talking about stocks, remember that they represent little pieces of a company. Ideally, the company is growing in size and buying assets. So over the long run, unless it goes out of business, it will probably gain value. For example, in 1930, if you and I made a trade on stock in the Ford Motor Company, and you "ripped me off", if I still held those stocks today, would I be hurting? No, because they'd be worth scads of money since the company grew and invested a heck of a lot over the time period. Where did that value come from? From the customers, who bought cars. So whether it is a zero sum game depends on the time interval involved...the hold time. So yes, three traders can all can all benefit from a transaction if the hold time is long enough. In the short run, is it zero sum game? Maybe, if all of the parties involved had a short time horizon...but they don't....Somebody in there usually wants to hold it for a while as an investment or a hedge, etc. SM
kid ... trading is like this good luck ! www.istockphoto.com/file_thumbview_approve/10169023/2/istockphoto_10169023-spaghetti-head.jpg
Well, you can certainly take your poker experience into trading, it is essential to follow the golden rules of poker. Borrowing a line from Kenny Rodgers, "you got to know when to hold them, know when to fold them, know when to walk away and know when to run". Good luck.
Usually people ask questions of old experienced traders, but you present questions for a new trader, so I, as a new trader, will answer you. First of all, poker playing has nothing to do with trading, despite the seemingly similar characteristics people are "seeing" in both of them. If people want to, they can see similarities between trading and many other things: boxing, golfing, war, climbing, driving, living, etc. However, trading is uniquely trading. 1. you can go to a bookstore and read any of those trading books, from "trading for dummy" to "advanced technical analysis," from day trading to night trading. Don't worry about avoiding books on mental side of trading, because none of them are good at mental side of trading. If they were good, the authors would be trading instead of selling books. 2. Market goes up because of buying. Market doesn't necessarily increase over time, for instance, over this period of time (2001-2009), it didn't increase. If it increases, it is due to the input of money: pension funds, retirement money, social security money, endowment money, inflation, foreign money, Bin Laden family, etc. 3. yes, it's a 0-sum game. Three buy a stock and the stock goes up, the three make money, on paper. If the three want to make real money, they have to sell. Where does the money come from? the buyers. 4. Refer to answer 3. The buyers have to put their money in for the sellers to take money home. If the buyers want to make money, they have to find new buyers to take over their stock positions at a higher price. If you are greedy enough to buy at this higher price, you have to give money to the sellers. After you buy the stock, you naturally want to sell it at an even higher price, but suddenly you find nobody is willing to buy from you, at least not at "your" price. So you lower your price, still nobody buys. You lower again, still nobody buys. Now you realize who is the loser, do you?