I was once asked this question by a young trader and I could not give a good answer. The only response I can give is based on my experience which is as follows; 1. I started in May00 with 15 other people, I am the only one left of that original group. 2. Months 1-5 I spent taking exams, making sure I passed on the first try. Months 6-18 I lost net $2.5K. Months 19-25 I have made $35K/$5k per month Is it luck or skill?
I first read this awhile back in a book by Larry Williams. I'm not sure who said it originally, but it made a lot of sense to me. I have used it many times when explaining to non-traders (mainly family members) why I'm not a lunatic.
thanks all. From you guys' experience, it is very obvious that the luck covers very small part in the day trading.... some people can survive in this field for one year, he/she definitely is able to control what he/she is doing. later, he will get ver stable cash flow by operating the trading... There is not too much luck in day trading: risk management will not let you lose your base capital; and good model and tech plus good personality will let you earn more... that is the field. roumeo
Roumeo, why do you think long term trading is 50% gamble? If you have a good system, long term trading is the same as short term trading, just in a different time frame. I trade both long term and short term, there is no big difference, I just follow my signals...
This is how Ralph Vince put it in his book" Portfolio Management Formulas" "The main difference between gambling and speculation is that gambling creates risk (and hence is considered morally wrong in most societies) whereas speculation is a transference of an already existing risk to a speculator."...Ralph Vince
I think there is a big difference. example...If you gamble $1000.00 on a football game there is 3 outcomes..... 1) u win $1000.00 2) u lose $1000.00 plus vig 3) or its a push and nothing happens. in trading....you can enter a trade and have many outcomes, not in the direction the stock goes, but in how much u lose or profit from that trade....u can lose the whole thing or just .20, you can double your money or just take .20 profit.....basically 2 traders can enter the trade at the same price and have different outcomes...so strategy plays a big role.....and by using a sound strategy u can hit 30% of ur trades and still make money.....in gambling that is not possible......assuming u use the same amount of money each time......
Trading can be a gamble if you want it to be. The difference is in trading Even if you are right only 50% of the time you can make a good living provided you have an appropriate risk reward ratio. For instance If your average loosing trade is 1/8 and your average winner is 1/2 , then even if you are right only 50% of the time you will be profitable. In my opinion risk reward and controlling ones losses is key to making money in this business. I have had 1 month in the past 16 that I was net negative. People can call it what they want legalized gambling, speculating, day trading, I call it a fun way to make money.
I would think that trading is more akin to poker with a house rake(house = broker, with the scalpers paying up the most in this regard), as opposed to casino games like blackjack or roulette. No one who trades really has a pre-fixed edge that lasts, even floor traders who pay near zero commissions cannot be compared to a casino who is mathematically guaranteed gains over time. There are relatively few people who can grind out a living at the poker tables, the money just funnels from the amateurs to the professionals. Same goes for trading, and in both cases psychology counts for as much or more than the mathematical odds -- whereas casino table games have no such component.
For most people when they walk into the casino they do so to gamble. But, every now and then Donald Trump or some other Casino owner walks in, not to gamble but to make sure his operations are in order to make a profit. So, for most people the casino is there for gambling, but for the casino owner it is there in order that he can pull out a relatively consistent income by applying his edge. When most people turn on their computers and gear up the level2, I suspect they are like the average person walking into a casino (though they may not know it). But there are exceptions such as the "owner" coming in. In trading the owner is not the owner of the market etc, but he knows he has and edge that he can apply and does so. Brandon
Good thing I did not post the quote as my own, I did not read either the Williams or Vince books so it must be a popular analogy. Outside the trading forum though, it makes me sound smart so don't tell anyone OK.