Are you a gambler or a trader?

Posted by Satuki On April - 25 - 2010

Some people walk into the market as if it were a casino. Trading in a sense is like gambling because luck is somewhat involved in almost every trade. But it differs from gambling because you could beat the house.

In a casino, every game is designed in such a way that the house will always be the winner. For example, I were the house and you were a gambler. We play a game. My odds of winning is 51% and yours is 49%. Mathematically speaking, if you keep playing the game, you will lose in the end. Plus, the house has much more money than you. I can tolerate a string of losses without any problem and you can not. I know that you will give back all your profits plus your own money if you keep playing. If you lose, you will keep playing because you want to get your money back. If you win, you will keep playing because you want more. It is as simple as that.

Most gamblers do not have any gambling plans. Even if they do, their plans will never work because the house always will have an edge over them. But in trading, it is possible to have a system that can consistently beat the house/market). Yes there is manipulation in the market. But a stock will eventually go where it should go. In addition, a stock,even if manipulated, normally gets swept away by the general market. It is not hard to manipulate one stock. But it is close to impossible to manipulate the whole market due to its shear size. So I believe trading is more fair than any game in a casino.

Here are 2 questions to test if you are a gambler or a trader

Do you have a trading plan that includes your entry, exit and position size for ever single trade of yours?
Does your trading plan above produce a positive expectancy regardless the market cycles?

If your answer to the first question is No, then stop the gambling you call “trading”. You might just donate your money to a charity.

if Yes to the first but no to the second, it is fine. You are a losing trader for the time being. If you work hard enough on your system, you might come up with a good one. But you must quantify your expectancy.

If Yes to both, congrats! You are all set for the rest of your life.

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http://twitter.com/Jss123051 Sasha
Very good and oh so true! Satuki is a disciplined trader. I trade trends so my exact entry and exit points are determined by the beginning and ends of each trend. When buying slows down and selling starts, I'm short vice versa for selling. It's only important to get a piece of each move and get out as soon as you determine you're wrong. It's not the end of the world to admit you're wrong. It could be though if you're holding a position (gambling) when it turns against you. Almost all my trades are closed before the bell rings. Holding positions is gambling to me and frankly I'm not that good. Plenty of $$ to be made intra-day. Good luck to the gamblers. To the wise traders, talk to again soon.
traderx
Not sure I agree with rule 1. For starters, when you say exit I'm not sure if you mean target or stop. But, I've learned over the years that most hard and fast rules usually work better in theory than in practice and are usually the result of a lack of experience or confidence in the set up or both. That said, you do need some general rules and a plan of action for each trade. I'll give you 2 examples just from today.
1. APPY..It spiked right off the open and I wanted to short it at about 5.00 so I placed my order at 4.95. I had no idea 4.98 would be the high of course. Initially my plan was to ride out any squeeze and maybe even add around 5.50. That add would have been determined based upon how I felt at the time and more importantly how fast it got to 5.50. If more than 10-15 minutes then I would probably just stop. That never happened obviously and because it broke so fast I just took the quick .45 and hit the road.
2. AIG..started a short position around 43 in pre-market. I was holding back waiting for the open to decide if I would add or set a stop. My intial target was somewhere in the 41's. No precise number just below 42. The market opened and AIG was in the 41s in a blink of an eye so I decided to just ride it out a bit and put a stop in about .70 above my entry. It just sort of bounced around 42 for a bit and since I had the APPY gains I was willing to be patient. Lowered my stop to b/e and just watched. CLearly I had no idea the market was going to roll over like it did but as AIG edged lower I just kept lowering my stop. Finally on the plunge to 40 I covered at 40.40.
Could APPY have squeezed and stopped me? sure. Might AIG have reversed and stopped me, of course. In either case the loss would have been acceptable though and in both cases the risk vs reward was in my favor so had I lost I could have dealt with it just fine as part of the game. I'm a lot more happy that didn't happen though.
I think sometimes we all forget that there are a lot of things that work and it really serves no purpose to claim one way is better than another or that someone who is doing something different is somehow wrong. So the whole gambler vs trader comparison doesn't really hit with me. If fact, good trader's do outright gamble from time to time. They just know when they're doing it.
Good luck
http://www.momdaytrader.com/blog/ Satuki (Trader Mom)
What I meant by “exit” refers to both “stop” and “target”. “Stop” means “hard and fast”. There is no argument over that because you can not simply have an ambiguous stop. “Target” might mean a hard target or a trailing target. But I would like to consider it as “Hard and Fast” too because I close a position whenever my system generate a signal. I do not second guess it. Or at least, I try not to.
I do not agree with your approach in the first example, which is a typical “averaging down”. As a day trader, I never ride out anything, let alone adding to a losing position.
I also do not agree with your statement that good traders gamble from time to time. Gambling means you have no idea what your odds are, just like you walking into casino as I explained in the post. Good trading means “a positive expectancy”. So if you look at it from this angle, it just as clear as white and black. In other words, gambling is a sucker's game.
http://www.momdaytrader.com/blog/ Satuki (Trader Mom)
What I meant by “exit” refers to both “stop” and “target”. “Stop” means “hard and fast”. There is no argument over that because you can not simply have an ambiguous stop. “Target” might mean a hard target or a trailing target. But I would like to consider it as “Hard and Fast” too because I close a position whenever my system generates a signal. I do not second guess it. Or at least, I try not to.
I do not agree with your approach in the first example, which is a typical “averaging down”. As a day trader, I never ride out anything, let alone adding to a losing position.
I also do not agree with your statement that good traders gamble from time to time. Gambling means you have no idea what your odds are, just like you walking into casino as I explained in the post. Good trading means “a positive expectancy”. So if you look at it from this angle, it just as clear as white and black. In other words, gambling is a sucker's game.
traderx
I think part of this is definition. Gambling to me doesn't mean not having a clue it means getting invovled in a low probility but potentially hi reward situation.
As for number #1, I have to believe thats because you only trade chartgs and really don't understand the underlying fundamentals or in this case the reason for the move. APPY is a massive pos that could easily be shorted and held if one were inclined to trade it that way.
In any event you should really open your mind. Someone making 2k a month clearly doesn't have all the answers, imo. Hell, I do 5x that and I don't think I know anything. There's probably a lesson in that alone.
Good Luck
http://www.momdaytrader.com/blog/ Satuki (Trader Mom)
Your approach in example 1 implies 2 serious flaws. First is that you do not use stops sometimes because you like to ride out a possible losing trade. Second is that you add to a losing position. I did not expect those from an experience trader like you.
These 2 mistakes imply that your trading suffers from great draw-downs,which I avoid at all cost.
The reason that I make 2k a month is because of my small position size. I had 7k a month for quite a while running a tiny 50k account without using any leverage. But I suffered from big draw-downs. I did not like it.
Of course, I do not have all the answers. That is why I do not even care how much I make per month now. I just want to work on my system. I like hard and fast rule since I will automate my trading one day.
I am very open to new things. That is why I am trading Forex and have dedicated to automate my trading.
tradex
Your too rigid to get “it” I think.
True, there are times when I do not have a stop in place. Thats not a flaw it's a gameplan. In such cases my lack of a hard stop would be reflected in a smaller share size.
Your “adding to a losing postion” also shows a inability to think beyond what your doing right now. I'm not adding to a losing position, I'm scaling into a position. There's a big sifference. Another big difference, which was my point all along, is that there are many different ways to trade successfully. When entering a stock thats squeezing I can't know where the top is, only that when the squeeze ends the bottom will fall out. Therefore, I have to limit my intial entry to reflect that risk. Regardless of when I enter though, or how many different prices I enter at, my loss is still defined by what I'm willing to lose. Period.
Great drawdowns? I think my single worst month in the last 6 years is -3.0%. Not a great drawdown in my book. Once again, you presume to know things that you just simply don't. That hurts you.
Yes, you make 2K because of small size no doubt. And you trade small because you lack the confidence to trade larger. Thats not a knock on you. Believe me, even when you know you'll win overall sizing up is damn hard.
Being open to new types of instruments to trade is not the open mind I'm talking about.
Fundamentals may seem like a strecth to you, but once again, thats only because you don;t know any better. I don't know any decent trader, and I know quite a few of them, who trade stocks in companies they don't know or understand. But, again, thats because you think charts are all there is. Charts, btw, are great. I couldn't trade without them and sometimes I'm in a trade simply because of the chart. But if it's just a chart play I'm probably in a lot smaller.
Another idea I'll throw at you that will make your head soin I'm sure is that really good trader's avoid large cap stocks like the plague. It's almost impossible to have an edge there.
I'll will leave you in peace and give you 2 great setups to watch for. Seriously, watch for them and learn. Don't trade 'em, just watch.
1. A stock has earnings which are horrible. The stock has been hammered into earnings and opens down on the earnings report. If it rallies back and you buy the cross to green it's almost always a winner. Probably works 90% at least. There's a specific reason why this works but I won't bore you with details about something you don't believe.
2. Just the opposite. IMAX was a perfect example just today. The stock runs into great earnings. Opens higher on the day then fades. You short the cross to red. Another 90%er.
It's just a shame these don't happen more often or they would be all I would trade.
Anyway, I suspect you think I'm wrong and just a gambler which is fine as my account says differently, but perhaps somewhere down the line you'll remember some of this and decide to think about itwith a open mindset.
Good Luck

traderx
Btw, as for Timmay if you want some fumhere’s what you do.
Timmay has a habit of posting his covers after the fact when it appears the trade might be going against him. So if the stock bounces you can be sure Timmay will send out an alert in a few minutes saying he just happened to cover at the low. Amazing how he always hit the low tick..lol
Anyway, once he covers just throw out some big bids and squeeze his idiot subs scambling for the exit for a quickie. Again, you talk as though your such a know-it-all when you know so little. You couldn’t even figure out what I meant when I said I faded him. LOL! Too funny. Fading people with a large following is the bread and butter for some traders..Did you know that?
Of course not. Btw, you better stick with big caps because if I ever see you in a small cap I’ll squeeze your little chinese ass so hard you won’t shit for a week. haha

http://www.momdaytrader.com/blog/ Satuki (Trader Mom)
Am I rigid? No, disagreeing with your approaches does not mean “being rigid or closed mind”.
“Averaging down ” is your game plan? You call ” your averaging down” “scaling in”? Ask Jess livermoore and he would tell you to scale up once your first position is moving in the right direction. Nicolas Darvas 's famous “Pyramid” also says the same thing. Neither of them would add to a losing position. Go review their books. Of course, you might think they could not think beyond what they were doing.
For a day trader, A 3% down month is a pretty bad draw-down. It is OK for a swing trader though.
Yes, good trader do not trade large cap stocks because they are not good enough yet. Only the best traders do since it is easy to hit them with large positions. Actually, you will find superb trader in Forex since Forex is the most liquid market. I actually trade Mid cap stocks most of the time.
OK, to prove me wrong, you need to post your trades real time. I do not care how much you make. I just want to see your weekly or monthly equity line. I can tell that you are not a high frequency trader. So it should not be too much trouble posting them real time. You can do it on Twitter. It will record the time stamp of your posting.
All claims need to be backed with hard and code evidence. Otherwise, it is just hot air
You would like me to be open to that kind of primitive flaws? Nah. I will pass that.
traderx
wow!
Talk about proving my point. Holy smokes!
Btw, no one said you should change your system so your defense is really unnecesarry. All I was suggesting is that your initial post claiming that anyone who doesn't trade like you is a gambler was flawed and perhaps you should open your mind to the idea that there are other, maybe even more successful, ways to daytrade.
I would disagree with you though on 3% being large. Over that time I've had many 8+% months. In fact, your idea of consistentcy is such that it really is your problem not your strength.
By the way, you sure sound like someone who thinks they've got it all figured out. All you need to do increase your position size and you'll be all set, huh? LOL! You have no idea have funny that is to me. At this point I can't help wonder whether your real motive is to make money trading or to sell a newsletter.
Rohan
Why are you not trading these days? I check your stocktweets and blog everyday for day trading tips.
http://www.momdaytrader.com/blog/ Satuki (Trader Mom)
No, you have proved nothing except putting words in my mouth
All I said in my post is that every gambler in a casino is a sucker because he has a negative expectancy. Put it in a simple way that you might understand. They are mathematically idiots.
I never implied in my post that my trading methodology is the only way to go. There are many different ways to trade successfully. And all of them have positive expectancy.
Watch and learn? Watch what? learn what? Averaging down? Riding out a losing position. You gotta be kidding…
I look at trading like a math game. So mathematically speaking, increasing position size will work. It might just work on paper for now. However, there is a great chance that I can make it happen in real life. Although nothing is certain in trading, I think I will have a good chance to show you that it will work. Just stick around.
There is nothing wrong with selling a newsletter. It is a very good business model if you can do it. Let me introduce you Tim Sykes, who is a great penny stock trader. His trading is not scalable,which he admits it himself. But his business(selling subscriptions) is so successful that he has been featured quite a few times on the main stream media.
I write only one post per week now. Do you think I have the time to sell subscriptions?
http://www.momdaytrader.com/blog/ Satuki (Trader Mom)
I have a guest. I can not trade lately.
traderx
Tim Sykes is basically a scumbag who front runs he's subscribers. This is who you aspire to be like? I'm sure not, but it just goes to show how little you really know when you use someone like him as an example of a great trader. You're becoming a joke now.
Ignorance truely is bliss I guess.
http://www.momdaytrader.com/blog/ Satuki (Trader Mom)
I brought up Tim because you questioned if I wanted to sell subscriptions as if it were a bad thing. Then I used Tim as an example to prove that selling subscriptions is a viable business model. That is all. My trading is totally different than his. I never touch penny stocks as you already know. So I do not aspire to be a trader like him. But I do respect him as a successful business man.
He turned 14k into over a million, which is verified. And his current performance is verified thru Covestor. Those are hard facts.
From the start of this debating, I have used hard and cold evidence to support my arguments. And you?
Put your trading skills aside, your debating skills are only at grade school level. Here is debating 101. First, you bring up your argument. Then prove it with hard and cold evidence or use a reputable citation. For example, let's say you think “all great day traders mix FA with TA”. Now you need to back it up with a reputable source. You can not say “All good traders I met do that”. That statement is not tenable since it is not considered “reputable or verifiable”. What you could say is that “Ed Seykota once said “blah blah”. You need to use great names like that to back up your argument. Otherwise. it is very weak.
BTW,I am sure Tim is a much better trader than you. Please don't come back with all your BS again unless you can back it up with evidence.
traderx
Oh I'm sorry, I consider someone a great trader if I know for certain they are making 7 figures a year, but I guess your definition of a great trader is someone who writes a book or a newsletter..LOL!
Btw, I gave you several specific examples of actual trades. I'm not sure how anything could be more cold and hard of a fact than that.
As for Sykes, if you knew anything about him you would know he oftentimes averages into trades adding when he is down. I know because I subscribe to his service so I can fade his sheeple. In truth, he could be be a much better trader if he didn't jump in and out all the time, but it sure creates nice opportunities for guys like me that does this. ALso, most every one of his daytrades is based upon fundementals meeting technicals. Something you claim isn't possible even though you claim he's a great trader. So your own example proves both of your major points to be flawed. Thats what happens when someone spouts off like an expert when in fact their just a wannabe.
As for my trading skills, I make more most weeks than you do in 4 months. I made 4x what you made last year and I trade less money than you. The examples I gave you were outliers- times when rigid rules don't apply. In your effort to prove yourself right to validate your service you turned that into an overall startegy I my part. Not true.
Have fun making your 2K a month. Perhaps once you get those subscriptions rolling you'll make enough to actually eat. For now you can just munch on the pretzel you've turned yourself into in this conversation. Btw, this was a conversation not a debate as that would signify that the outcome would produce a winner and a loser when in fact this was never about that for me. Why was it about that for you?
http://www.momdaytrader.com/blog/ Satuki (Trader Mom)
You have been arguing the whole time. You have wanted to prove that my trading is rigid and I implied that my trading method is the only way to go since the beginning. Is that not debating/arguing?
Have you learned statistics in college? If you have, you know outliers can not be used to prove a theory. That is why they are called outliers. I can immediately find 10 counter-examples to your so called “facts”. Why can I find 10 so easily? It is because that they are within the normal distribution of my system. See I do not use outliers to prove anything.
You subscribed to Tim's alerts because you wanted to fade him? LOL, you do not lie very well. Here is his website. http://www.timothysykes.com/index_2/. Look at all his trades verified through Covestor. Most of his trades(over 80%) are winners. If you really faded him, you would have lost big.
You said you trade less money than I did. What did it prove? Nothing. Are you saying a swing trader that makes 100k a year is better than a scalper that makes the same amount? See how easily I can defeat your argument?
Let' me sum it up for you
1. You are incoherent in your reasoning.
2. Your knowledge of statistics is almost none
3. You had to lie to desperately prove your points.
We have proved that Your trading is seriously flawed. So let's not talk about that anymore. I really want you to improve the way you argue/debate. Then it would be more fun. Here are a few pointers.
1, Do not use outliers to prove your theory.
2, Do not use your own unverifiable “facts”. They are weak. Do you see me use any citations from myself?
3, Think harder before you talk.
What is wrong with Pretzel? I love it.
traderx
I never said your trading was rigid, I said your mindset was. Perhaps if I keep my posts to a limited number of words you can comprehend them.
http://www.momdaytrader.com/blog/ Satuki (Trader Mom)
I have deleted your last post. I know every single post of mine hits you where it hurts. But using profanity is prohibited here. One more time, I will ban you forever.
Healthy debating/discussion./arguments are encouraged, regardless how biased or heated they might be
traderx
LOL! Profanity?
You lying piece of crap. Ban me if you can't take someone making you look like the idiot you evidentally are. I'm sorry hurt.hehe
Btw, I made more than your whole year this morning. HAHA!
http://www.momdaytrader.com/blog/ Satuki (Trader Mom)
There is no need to curse at me even if you do not like my ideas. Now you have been officially banned for repeatedly using profanity.
David R.
Satuki,
You have no need to defend your trading strategies. You are excellent on all levels and you’ve proved it. By any measure, you are a successful trader.
The poster, “traderx” has baited you. The blogs are full of people like this, and you know what they’re full of. Pay no attention to these individuals who are incapable of rational discourse. They only want a forum where they can show the rest of us how great they think they are. In reality, they are likely failures and it highly doubtful “traderx” is as successful as he/she claims. Successful traders don’t engage in these sorts of adversarial exchanges. They’re too busy trading!
Keep up the great work, and thanks for sharing your journey.
Cheers,
David R
David R.
Satuki,
You have no need to defend your trading strategies. You are excellent on all levels and you’ve proved it. By any measure, you are a successful trader.
The poster, “traderx” has baited you. The blogs are full of people like this, and you know what they’re full of. Pay no attention to these individuals who are incapable of rational discourse. They only want a forum where they can show the rest of us how great they think they are. In reality, they are likely failures and it highly doubtful “traderx” is as successful as he/she claims. Successful traders don’t engage in these sorts of adversarial exchanges. They’re too busy trading!
Keep up the great work, and thanks for sharing your journey.
Cheers,
David R
http://www.momdaytrader.com/blog/ Satuki (Trader Mom)
Well, he basically just kept trashing my 2k per month and bragging about his unverifiable 10k per month, which was all fine until he started using profanity.
http://www.momdaytrader.com/blog/ Satuki (Trader Mom)
Well, he basically just kept trashing my 2k per month and bragged about his unverifiable 10k per month. It was all fine as long as he does not use profanity. I am tolerant with different opinions.

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