***** Okay since ElectricSavant attacked me for "not sharing", i have no choice but to share so that people searching for my post history will see 862 rubbish posts and 1 debatable semi-good post. ***** ----------------- Some things i noticed about trading... (which is "been there done that" for about 50-60% of ET forum population anyway) 1) Trading is remarkably similar to Blackjack/Poker/Gambling! Trading and gambling both revolve around edge and expectancy. Simply put, IGNORING SPREAD, COMMS & SLIPPAGE the chance of any random position hitting +x ticks is equal to it hitting -x ticks. Add the 3 evils and you get negative expectancy. This is regardless of any bet sizing you do! (martingale or otherwise) This is eerily similar to roulette wheels and blackjack tables where you have a negative edge thanks to the fabulous house advantage of some times up to 15-20%. In the long run you will lose x% of your bet, where x = house edge. No bet sizing, martingale or betting systems will help. The main objective in both trading and gambling is to then find an "edge" which will manifest in the long run. BJ counters count card and play hands with better probability than average, giving them about 1+% edge which appear in the long run. (they win the amount equal to 1% of their bet size) 2) Most trader don't have the money management blackjack card counters or poker enthusiats have! This one is a shocker. Having learnt card counting and poker theories I mingled with both crowds and find that, to my surprise, most traders don't employ as much money management as gamblers! :eek: For example, BJ counters tabulate their risk of ruin and size their bet accordingly. Most won't try to "beat the dealer" without knowing that their RoR is 0.2% or less! Traders, on the other hand, slap a "risk 2% per trade" and go forth to the markets! :eek: BJ counters know it takes about 10,000 hands or more to see their positive 1-2% edge. But most traders expect to "make money on the go" with 20-30 trades! There are journals featuring maybe 50 trades with 70% winners which proudly proclaims they have a 20% edge. :eek: Due to variance, even a system with positive edge can lose money at the start and a system with negative edge can win at the start. ----------------- My question: Can blackjack theory be applied to trading? BJ basic strategy that decreases house edge to 0.5% is based on the fact that some hands are better than others. Thus bigger bets are made on hands that are better. Eg. doubling on good hands. The main problem with applying this strategy to trading and betting more on good trades i think, is because of the unknown outcome. In BJ if you get a good hand, it is statistically proven that that combination of cards win more often in the long run, thus doubling ur bet (if the rules allow) will increase ur edge. In trading, however, u don't have to play every hand and so far no one knows anyway to prove statistically that the current trade will win more often. Thus i asked questions like this: http://www.elitetrader.com/vb/showthread.php?s=&threadid=53545 That thread asked : "is the trend really your friend?". If trading with the trend on a higher time frame has an edge, constantly take random trades in the direction of the trend would give profits in the long run. Unfortunately, all my work has so far show that even in an uptrend, the chance of hitting x tick up or x tick down is equal! So...who else wants to contribution regarding this topic?