==== If trading can be taught, can it be taught to anyone with reasonable intelligence? ==== Anyone with average intelligence can learn to trade. This is not rocket science. However, it's much easier to learn what you should do in trading than to do it. Good systems tend to violate normal human tendencies. Of the people who can leam the basics, only a small percentage will be successful traders. If a betting game among a certain number of participants is played long enough, eventually one player will have all the money. If there is any skill involved, it will accelerate the process of concentrating all the stakes in a few hands. Something like this happens in the market. There is a persistent overall tendency for equity to flow from the many to the few. In the long run, the majority loses. The implication for the trader is that to win you have to act like the minority. If you bring normal human habits and tendencies to trading, you'll gravitate toward the majority and inevitably lose. ==== Among the observations you have made about markets and trading over the years, do any stand out as being particularly surprising or counterintuitive? ==== Some years back, a company ran an annual charting contest. The contestants had to predict the settlement prices of several futures for a certain date by a given deadline. Someone in our office [Dale Dellutri] decided, I believe prankishly, to use the random walk model. In other words, he simply used the settlement prices of the deadline as his prediction. He fell just short of becoming a prizewinner with this procedure. His name was among the first five of a list of fifty or so close runners-up. This contest had hundreds of entrants. Therefore, more than 95 percent, and probably more than 99 percent, of the contestants scored worse than blind randomness. This is no mean feat. The extremeness of the outcome in this story seems to support an apparent phenomenon that I've observed many times over the years, but for which I have no hard evidence: The majority of people trade worse than a purely random trader would.
You must always think differently to most, if you want to be successful, that is! The "obvious" that I am thinking of, is not the "obvious" that most will think of, but it is so "obvious" it is like the nose on your face - everyone knows that they have a nose, but only a very small few can actually see it without looking in a mirror ==== Your hypothesis implies that most traders would be better off throwing darts than using their existing method-a provocative thought. How do you explain this phenomenon? ==== The market behaves much like an opponent who is trying to teach you to trade poorly. I don't want to suggest that the market actually has intentions, because it doesn't. An appropriate analogy is evolutionary theory, in which you can talk as though evolution has a purpose. For example, birds evolved wings in order to fly. Technically, that's wrong. Birds aren't Darwinians, and you can be sure no bird or protobird ever intended to evolve a wing. Nevertheless, natural selection acts very much like it intends for species to evolve things that are beneficial. You can talk about the markets in a similar fashion. Anybody who has traded for a while begins to feel that the markets have certain personal characteristics. Very often the feeling you get is that "they are out to get you," which is simply a personalization of the process. This illusion is well founded. The market does behave very much like a tutor who is trying to instill poor trading techniques. Most people learn this lesson only too well.
Who nose where this text is from "The change which actually took place in that world was in no sense revolutionary. Half an hour after swallowing the drug I became aware of a slow dance of golden lights. A little later there were sumptuous red surfaces swelling and expanding from bright nodes of energy that vibrated with a continuously changing, patterned life. At another time the closing of my eyes revealed a complex of gray structures, within which pale bluish spheres kept emerging into intense solidity and, having emerged, would slide noiselessly upwards, out of sight. But at no time were there faces or forms of men or animals. I saw no landscapes, no enormous spaces, no magical growth and metamorphosis of buildings, nothing remotely like a drama or a parable. The other world to which mescalin admitted me was not the world of visions; it existed out there, in what I could see with my eyes open. The great change was in the realm of objective fact. What had happened to my subjective universe was relatively unimportant. I took my pill at eleven. An hour and a half later, I was sitting in my study, looking intently at a small glass vase. The vase contained only three flowers-a full-blown Belie of Portugal rose, shell pink with a hint at every petal's base of a hotter, flamier hue; a large magenta and cream-colored carnation; and, pale purple at the end of its broken stalk, the bold heraldic blossom of an iris. Fortuitous and provisional, the little nosegay broke all the rules of traditional good taste. At breakfast that morning I had been struck by the lively dissonance of its colors. But that was no longer the point. I was not looking now at an unusual flower arrangement. I was seeing what Adam had seen on the morning of his creation-the miracle, moment by moment, of naked existence."
And it gets much much better - the name of the book speaks for itself! "I continued to look at the flowers, and in their living light I seemed to detect the qualitative equivalent of breathingÃbut of a breathing without returns to a starting point, with no recurrent ebbs but only a repeated flow from beauty to heightened beauty, from deeper to ever deeper meaning. Words like "grace" and "transfiguration" came to my mind, and this, of course, was what, among other things, they stood for. My eyes traveled from the rose to the carnation, and from that feathery incandescence to the smooth scrolls of sentient amethyst which were the iris. The Beatific Vision, Sat Chit Ananda, Being-Awareness-Bliss-for the first time I understood, not on the verbal level, not by inchoate hints or at a distance, but precisely and completely what those prodigious syllables referred to. And then I remembered a passage I had read in one of Suzuki's essays. "What is the Dharma-Body of the Buddha?" ('"the Dharma-Body of the Buddha" is another way of saying Mind, Suchness, the Void, the Godhead.) The question is asked in a Zen monastery by an earnest and bewildered novice. And with the prompt irrelevance of one of the Marx Brothers, the Master answers, "The hedge at the bottom of the garden." "And the man who realizes this truth," the novice dubiously inquires, '"what, may I ask, is he?" Groucho gives him a whack over the shoulders with his staff and answers, "A golden-haired lion." It had been, when I read it, only a vaguely pregnant piece of nonsense. Now it was all as clear as day, as evident as Euclid. Of course the Dharma-Body of the Buddha was the hedge at the bottom of the garden. At the same time, and no less obviously, it was these flowers, it was anything that IÃor rather the blessed Not-I, released for a moment from my throttling embraceÃcared to look at. The books, for example, with which my study walls were lined. Like the flowers, they glowed, when I looked at them, with brighter colors, a profounder significance. Red books, like rubies; emerald books; books bound in white jade; books of agate; of aquamarine, of yellow topaz; lapis lazuli books whose color was so intense, so intrinsically meaningful, that they seemed to be on the point of leaving the shelves to thrust themselves more insistently on my attention."
==== My image of a blackjack table is where you sit down and are continually dealt hands* From a practical standpoint, how do you bet so selectively without it appearing awkward? ==== My strategy was to play only the hands that had an advantage. I stood back and did what was called back-counting. You can get away with that if you're betting small amounts of money. ==== Were you immediately successful using this technique? ==== Actually, in my first attempt, I made only about fifty bets and ended up with a net loss. At that point, I got a little more involved in calculating '*The object of blackjack is to get a total card count greater than the dealer, but not higher than twentyone. Each card has a point value equal to its face, except for picture cards, which each have a value of ten. and aces, which can be counted as either one or eleven at the option of the player, A blackjack is a two-card hand consisting of an ace and a ten-card- If a player is dealt a blackjack, he wins one and one-half times his bet, unless the dealer draws the same hand, in which case the result is a tie. If the dealer alone draws a blackjack, all players lose automatically. A player may draw as many cards as he wants as long as his total remains under twenty-one. If his total exceeds twenty-one, he loses automatically. The more concentrated tens and aces are in the deck, the better the odds for the player how many bets it would take to make sure that I would be a winner over the long run. ==== In other words, the reason fifty bets didn't work was that fifty was too small a number and still left the odds of winning too close to even. ==== Right. I knew that if I kept on playing with the edge in my favor, eventually I would come out ahead. Following Thorp's advice, I started with a base of $120 and placed bets between $1 and $4. After two years, I was ahead about $10,000. Around this time, I became friends with another blackjack player who told me about a team of players that were doing quite well. He said, "This is a very secretive team, so I can't give you the leader's name. But I will give him your name, and maybe he'll contact you." A couple of months later, my friend was killed in an automobile accident, and I assumed that put an end to any chances of contacting the team. About a year later, the organizer of the team called me. Actually, during the interim, I had tried to put together my own team. However, I wasn't too successful in recruiting qualified members. For example, one time we were supposed to meet at the Sahara in Las Vegas, which is the city we always played in. One of the players, however, knew only of a Sahara in Lake Tahoe. So that's where he went. All weekend long, we couldn't figure out where he was.
"If the doors of perception were cleansed every thing would appear to man as it is, infinite. For man has closed himself up, till he sees all things through narrow chinks of his cavern." - Aldous Huxley