people who think trading has more to do with luck than skill...

Just because within 5 years of "top traders" there is one guy who shows up more than once doesn't mean that his success depends on anything other than luck.

Honestly, trading is bullshit. Look at Brian Hunter's best paid year - could he really have predicted Katrina? Of course not. That doesn't mean trading isn't fun or cool.
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http://www.drmarkklein.blogspot.com/

poker definitely has to do with skill.

amen Jimbo

I wish everyone that thinks trading/poker has more to do with luck than skill sat on the other side of my moves. While I tallied up the dollars and savored your humiliation, you could use that time to retool your theory and formulate an apology.

I think the risk management part takes skills...much like managing your chips in poker. After that you just go with the flow...

To see what some traders think of this, ha. Most EMH guys would argue all traders are just blindly going into the abyss, and add no value beyond what you'd expect them to add. That sure, every dog will have his day (or a few), but in the long run, it averages out to just the average.

Any thoughts from the opposing side here? I'm not sure what I think yet.

Good luck to any trader who thinks that successful trading is more luck than skill. I think it takes a good understanding of
at least the fundamentals, technicals, risk management, market psychology, gut feelings and guts. If luck is on your side, that would be a bonus.

to alphaholic, most EMH guys are professors that dont make money in the market. Furthermore they tend to have a bias when you present them with evidence of nonrandom price data or certain fundamentals that consistently generate alpha.

There are plenty of traders that consitently beat the average by such a margin year in year out that it cannot possibly be attributed to luck. In statistics, we say they have big ass T-stats.

I personally feel that the EMH is laden with assumptions such as that all market participants are rational at all times. Markets do not work that way, human beings are not robots and are driven by the fear and greed cycle. This is human nature, and as long as it does not change the markets will never be efficient.

"Oh - the ladies ever tell you that you look like a fucking optical illusion?"

There's no denying the consistent winners, and I agree there's more going on than consistent "fat tails" (the fact that they are consistent makes the statistical term a dumb comeback). Whether that is all attributed to "skill" or some other unknown is still up for debate, and no one can say for sure, since there's no defining empirical data on what that "other" actually is.

Of course, obviously, the EMH has its faults, and most of the assumptions you have to make are ridiculous for it to work. But, like M&M, forcing these crazy assumptions shed some light on what IS important when you take the theory and slap it on the real world (in M&M's case, tax effects).

I'm an optimist, though: I think that while human behavior is something you could never hope to model with math, the aggregate might lend itself to some kind of proxy in the future (and whoever comes up with it, a nice fat paycheck and a Nobel I'd bet :-P ).

Of course, don't be (in general) narrow-minded to say all EMH believers are professors with no stake in the market. Dimensional Fund Advisors are a good example of theorists who put their studies to work. Eugene Fama is given credit for defining what the "EMH" is in each of its different forms. Today, Ken French and Fama both sit on the board of DFA.

Read Market Wizards. It will give you a unique perspective (along with making you want to become a trader).

"Oh - the ladies ever tell you that you look like a fucking optical illusion?"

1st or 2nd?

It is funny how the op assumes that poker takes so much luck. First, let me state I am in M&A IB, not trading. But I still felt the need to post here. Poker, just like trading, must be analyzed over the long run. There is a skill-set and strategy needed to be successful in poker. If one sticks to that strategy, they will win and win big in the long run. It is important to note that there will never be anything a person can do to smooth out volatility. Just look at poker. I could be a world class poker pro but even an amateur could beat me over the course of two hours. That is the volatility of the game. But if throughout the game, I consistently make the right play and play the hand the best way I can according to my skillful strategy, I will win big over that amateur without a game plan in the long run. Think of it like flipping a coin. If you flip it 10 times, you might have 8 heads and 2 tails. There is nothing you can do to change that short term volatility. But flip it 1000 times and you will come very close to 50/50 heads and tails. Trading is the same. In one year, someone may get lucky and make a ton of money and be the best in his class. But that can be due to risky bets with lucky end results. The best traders are ones that consistently rank near the top of their class for many years in a row. They might not be the most profitable one year but over the course of 10 years, it is highly likely they will have the biggest profitability. Volatility will always be there but skill will always win in the long run.

well stated mnabanker

mnabanker, i wasn't trying to assume that poker takes so much luck- it's an argument that i have heard so often and that i haven't been able to refute. it's not hard to see where it comes from, though. when you watch the world series of poker, someone random happens to win every year, and you never hear of them again, which makes you think that it has more to do with luck than skill. i think this ties into the saying that in wall street, there are only princes, no kings - or something like that, i can't quite remember correctly.

What do the traders on this board tend to think of the book "Fooled By Randomness"?

"it's not hard to see where it comes from, though. when you watch the world series of poker, someone random happens to win every year, and you never hear of them again, which makes you think that it has more to do with luck than skill"

That is because the main event (which is usually the event that is shown on ESPN) is only ONE event. If you actually look at the stats on some of the "lucky" pros you will see that they consistently win or place in the money at numerous tournaments throughout the year.

Taleb is a crank who likes to attribute his own failure at trading/investing/buying deep OTM options to bad luck and anyone else's success as simply good luck.

There's so many aspects to making money in trading that comparing it to poker would make it seem easy. Sure, trading is like poker in that it helps to know the other person's hand. Also, a lot of trading is about making bets when the market gives you odds you think are wrong. But, there's so much more to trading, for example, dealing with liquidity, etc.. that it would be unfair to say that trading is like poker.

in all my time on this site i have never seen mark klein McDouche ever post anything constructive

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"its the running joke now, we now have fair trade with china so they send us poisoned sea food and we send them fraudulent securities."

You've only gotta get rich once. Take a look at John Paulson - he was, and is, a B-list HF manager. Yet, he netted 3.7 B in personal profit in 2007. He bet the farm, and took a substantial amount of risk that paid off, but I bet his fund doesn't show returns like that ever again.

RossGellar, do some research. You have no idea what you're talking about.

How am I incorrect?

interesting.....while I was an SA last summer many traders I spoke with said that they would rather be lucky than smart (being smart does not mean having skills, but you get the point)

I am still not sure where I stand on this questions....(will get back to after a few months on the desk) but as of now I will say that I believe a consistently good trader has the right skill set, but being the guy who makes a killing one time when everyone else is doing pretty shitty IMO has more to do with being in the right place at the right time (luck) than skills

I'm sorry? You don't think his fund put on the trade of the decade? He bought lower-rated MBS insurance for pennies and sold them for dollars. More importantly, he was protected on the downside to the tune of about 8%. ie If the trade didn't work, he would have only lost 8% but he took several hundred percent on the upside.

It's very likely that his fund won't make that kind of return again but that takes nothing away from him - it takes both talent and circumstance for that to happen and we won't see similar circumstances for a while.

Since you don't rate Paulson, who do you rate and why?

I think its not luck, but being able to read the markets well and have good timing/judgement.