Is Trading Gambling?

The gambling known as business looks with austere disfavor upon the business known as gambling. – Ambrose Bierce, The Devil’s Dictionary

If you ever want to troll a trading forum, just ask this simple question: is trading gambling?  Unless the forum moderators are on the ball you’re all but guaranteed an epic mess.  For some reason this question pushes everyone’s buttons, and that’s a shame because it’s a legitimate question and a complete answer sheds light on the nature of both trading and gambling. Continue reading

12 Reasons You Should Avoid Financial Speculation

I hope my passion for trading comes through in this blog.  It’s not just something I do to make money – it’s on the short list of things I care deeply about along with family, charity and God.  No joke.  When I’m sitting around and there’s nothing going on and that internal monologue everyone has starts up – well, mine’s about trading.  Maybe that’s a sign of mental disturbance.  I don’t know.  But it’s true.  When I go about convincing other people that trading could be a good job or side gig for them, it’s because I know some of them will find it as fascinating as I do.

But there’s a downside to contagious passions – sometimes the people who catch them aren’t the people you intended. Continue reading

A Multiplicity of Monkeys

An infinite number of monkeys, typing randomly on typewriters, will produce the complete works of Shakespeare – the Infinite Monkey Theorem

Part of speculation, and trading in general, is coming to terms with uncertainty.  Sometimes your trades work.  Sometimes they don’t.  If you think you know ahead of time which way the next trade is going to go, well, you’re wrong.  You don’t know.  You may have some evidence, a probabilistic understanding, but you don’t know.  This uncertainty will never change – it’s true the first trade you take, and it’ll be true when you’re poring over the Bund yield curve in your nursing home and complaining that you can’t taste the pudding anymore.

If you’re going to encounter rampant uncertainty your entire career, it only makes sense to have tools for dealing with it. Continue reading

A Game of Inches

It’s a game of inches… – Vince Lombardi (maybe)

In the process of becoming the most successful coach in the history of the NFL, Vince Lombardi uttered perhaps the most famous commentary on the game of football.  Or at least I think he did – there are plenty of people willing to attribute those famous inches to him second hand, and yet I’ve been unable to find a reliable first hand source.  In any case, whoever said it was right.  I was dramatically reminded of this by a play I saw three weeks ago while watching the Broncos-Raiders game.

Denver has the ball and it’s 2nd down and 4 yards to go on the Broncos 41 yard line with the score tied 7-7.  The play is going to be a run, and everyone knows it. Continue reading

Is the Problem Technical, Psychological or Luck?

There’s a commonly bandied about statistic that something like 90% of active retail speculators lose money in a given year.  Incidentally, in this case “retail” means “private trading through a conventional retail broker like E*Trade” and has nothing to do with a retail store.

This statistic is taken from two places.  The first source is a congressional investigation into day trading that resulted in the SEC imposing the pattern day trader rule in 2001.  The second source is records from a number of brokers who have had their accounts exposed by bankruptcy.  The number varies slightly by source, but overall 90% is about right.  The smallest I’ve ever seen it was about 50% losers from a arbitrage-oriented foreign exchange broker.  These are sobering numbers. Continue reading

Baseball, Bonds, Math and the Power of Language

First off, don’t worry.  I didn’t title this post in an attempt to capture traffic from some obscure long-tail Google search term.  What I want to do is share my views as to how math relates to the financial markets and what separates good math from bad.  The ideas I want to share first came to my attention via, and were I think best expressed by, a baseball writer.  So we’re headed on a little detour into the math of baseball. Continue reading