people who think trading has more to do with luck than skill...
people often give the argument that trading, much like poker, has more to do with luck than skill, and i was wondering what you guys thought of that. how likely is it that a top trader one year consistently ranks as a top trader in the coming years?
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.
http://www.drmarkklein.blogspot.com/
in all my time on this site i have never seen mark klein McDouche ever post anything constructive
[quote=mark klein MD]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.
http://www.drmarkklein.blogspot.com/[/quote]
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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."
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.
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.
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?
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 think its not luck, but being able to read the markets well and have good timing/judgement.
My trading strategy..... am i getting lucky? (Originally Posted: 08/01/2007)
I've been trading in this stock competition, and I'm ranked 485 out of 50,000 people....I've just been looking at upcoming news events and trading based on what will happen tmrw as well as looking at some of the technicals, what happened the night before in the overseas market, and compare my judgements with some of the major analysts recommendations.....is this a good strategy? or am I just getting lucky?
if you can maintain it in the long run, you're doing something right
Get in the top 50 and put it on your resume.
What's your sharpe ratio?
what really propelled me into the top ranks was when i shorted about 500,000 shares of AHM...and then the next day it dropped about $9 a share....I just read some headlines about how really bad the subprime situation is and just shorted it
right now i think the situation is just getting worse, as its starting to affect the markets overseas. So now what I'm doing is I'm shorting BSC (bear sterns)...not only is there a 3rd BSC hedge fund that is virtually worthless, but also I think most financial institutions will take a hit this quarter once the severity of the subprime mortgage situation starts to wake up people...i just have a feeling its much much worse than what people have been saying
What competition are you in exactly?
50,000 people sounds like an extremely large contest.
http://www.hedgestop.com/
i dont know if it really is 50,000 people...but in my ranking it says
485/Total FSX Players: 52,579
so idk...im pretty sure a good amount of the players about half...probably signed up and barely play....so i guess a better estimate is 25,000 ?
Welcome to Marshall Wace TOPS....
I am also employing almost the same strategy as you. I am not in a competition though. I started the account about 7 weeks ago and I am currently up a little over 32%. There is a lot of risk and turnover in my portfolio but I am not very risk averse so I don't mind.
now im in the top 5%, and BSC went down a lot as a i predicted it would a few posts earlier, that helped me a lot....im starting to think im not getting totally lucky here...lol
don't delude yourself
somewhat related side note:
when i went to undergrad, we had an trading competition with some of the other local colleges and universities. total number of teams was about 1000. most teams had 3 students.
my team didn't take any positions until the third to last day because we really didn't care about the competition. on that day, we took some ridiculously concentrated option position that went 10x in one or two days. i think we ended up finishing in the top 5 or top 10 teams.
bottom line --- i think these competitions are misleading in several ways:
1) they usually occur over very short time frames 2) rarely do they consider the path you took to accomplish the returns 3) institutional quality strategies would never "win" these competitions. the winner will likely be some anomaly that is not repeatable.
Exactly. I'm in a trading competition right now, and for my I see only 2 worthwhile outcomes - do great or do terrible. If I do great I can put it on my resume. If I do terrible, no one ever knows I was in a trading competition. We have a 100,000 2x leveraged margin account. I am $200,000 deep in a short of LUM. If it goes up, i couldn't care less. If we see another 30% day, I'm in the top 50.
It might get a single line on my resume, maybe it will be something I mention when I'm asked about the markets. Either way, I wont be proud of it.
Exactly. I'm in a trading competition right now, and for my I see only 2 worthwhile outcomes - do great or do terrible. If I do great I can put it on my resume. If I do terrible, no one ever knows I was in a trading competition. We have a 100,000 2x leveraged margin account. I am $200,000 deep in a short of LUM. If it goes up, i couldn't care less. If we see another 30% day, I'm in the top 50.
It might get a single line on my resume, maybe it will be something I mention when I'm asked about the markets. Either way, I wont be proud of it.
I believe as long as you don't trade with real money, its all mostly luck... its like playing poker without money, affinity for risk increases since there is no real loss to be had...
^^ Before anyone starts shouting at me about how they play it seriously or anything...just to be clear, I do simulation trading too and I feel that at a sub conscious level I am willing to take quite bigger risks when I am using virtual money than if I am investing from my bank account.
13/4000 after 1 day. Should have done that with my own portfolio. LUM has a -75% day, haha.
Isn't it all luck? (Originally Posted: 07/27/2007)
I still don't understand the difference between trading stocks / gambling in terms of luck/success....someone shed some light on this please
There's some luck involved, sure.
It's mostly luck, but if you have even a little skill, you can make serious bank. It's gambling, but it's more Poker than roulette.
heh I love it when people attribute luck to success in trading. However, what about other fields? I can easily argue that most successful bankers, scientists etc were successful for a large part due to luck. Fact of the matter is that uncertainty is a fact of life and thus, many successes and failures can be attributed to luck.
However, what successful traders and gamblers do is try to play outcomes which present positive expectancies and manage risks properly. And here again, I can extend this thought over to other professions (and if you want to be philosophical, life). The world is not a perfectly ordered place. The lines between luck and success are not as obvious as many people make it seem.
IMO> Success is getting the positive end of the return distribution curve in a game with a positive expectancy. Luck is getting the positive end of the return distribution curve in a game with an unknown/negative expectancy.
there is luck involved, but traders take calculated risk.
gambling involves no edge, for example betting on sports or playing blackjack
a trader may put on a position where he believes he has an edge and lets say for example can calculate that he will be successful 65% of the time on a particular trade. if enough of these trades are made and an edge is there, over time the calculated risks will pay off.
Casino blackjack can provide a positive expected value. The guy who actually figured out card counting and mathematically tested it, Ed Thorp, has been an extremely successful hedge fund manager. Blackjack and poker are games where gameplaying can make it a +EV game. Roulette and slots will always be a -EV proposition.
It is professional speculation. You engage in smart, high-risk plays based on fundamental trading principals to generate high-reward.
There are no such things as "fundamental trading principals". There is also nothing smart in playing a -EV game.
Would you play a game which paid 25 dollar 70% of the time and lost 60 dollars 30% of the time? How about one which paid 100 dollars 15% of the time and lost 16 dollars 85% of the time?
The end goal in trading is simple: you try to make money over the long run by playing having a positive expectancy while managing short term volatility.
That is the most asinine thing I have ever read.
So...you can make money playing a -EV game huh? You must be brilliant to defy any and all logic in the world. You started a hedge fund yet? I would love to put some money in.
Here we are trying to eek out any sort of edge and figuring out new money management systems to manage short term vol in returns, while this Pathus guy can make money with no edge and without caring about MM. All you youngins should be taking advice from this guy.
Agree with trdr1 and lambateman. When someone says trading or poker is about luck, they're implying that it's predominantly dependent on luck, which is false
...you cannot atually make a positive expected value from a string of negative expected value events mathematically. Trading is very much about luck in the short run but nothing about luck in the long run just like blackjack (if you count cards), poker, etc. However, many traders who do not actually add value (negative EV) end up getting rich on Wall St. Usually it goes like this: A guy trades for a few years profitably until his market has some volatility and he blows up. During those profitable times he makes alot of money and of course he dosent have to pay it back when he loses it all and some. Then he finds another job and has a list of reasons why he blew out at his last shop...politics, got stuffed with others trades, poor systems, etc. He does this a few times and retires with a fat bank account and a negative career P&L. Ain't Wall St. grand!
if it was all luck then all of the "lucky" traders would be playing the lottery rather than taking 10% of their profits
leveredup> Actually what the traders have is better than a lottery ticket, its a free call. When you don't win a lottery, you lose money. Your odds of winning are also much less than .05%. When you trade, even if you assume its random, you have a ~50% chance of winning. If you don't win, you don't lose money (you will actually pocket that base salary). So its a pretty sweet deal actually.
There is a 50% chance of "winning"; if you disregard scratching and brokerage costs.
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