Casino Destroyer System
Most people gamble at some point in their lives. For most it provides entertainment, for some it becomes an addiction, while a few become pros and make a living at it. Gambling provides a living for a very small minority and entertainment for the masses, but a casual gambler Professionals treat gambling as a job. They keep calculating odds and act only when mathematics point in their favor. Losers, on the other hand, itch for the action and enter one game after another, switching between half-baked systems. A friend who is a successful businessman enjoys the glitter of Las Vegas. Several times a year he takes 5,000 in cash and flies there for a weekend. When his bankroll runs out, he goes for a swim in the pool, enjoys a good dinner, and flies back home. He can afford to spend 5,000 on entertainment and never blows more than his initial stake. Lounging at a pool after his cash is gone, he differs from legions of compulsive gamblers who keep charging more chips on their credit cards,...
Everyone loves to win And winning can be addictive How do you work with people to help them with their addiction of
In fact, investing is about dealing well with failure, because failures occur constantly. It's the response to failure that separates the great investors from the poor ones. Gamblers respond poorly to both success and failure. When things are going well, the gambler thinks Why quit now I'm on a roll. When things are going badly they say I can't quit now, not until I make back what I've lost. But then if they are lucky enough to make back their losses, well, they're on a roll again Why quit now Their instinct was right after all. They are about to make a killing. So at what point exactly does a gambler stop Probably never. That's why they are gamblers in the first place. The gambler will be done with the game only when all of his chips are gone. The final chips, of course, are placed in desperation Well, the only way to make back my money now is to take what's left and place it on one last great idea red 7. The biotech company my friend told me about. Double or nothing.
Gambling means betting on games of chance or skill. It exists in all societies, and most people have gambled at some point in their lives. Freud believed that gambling was universally attractive because it was a substitute for masturbation. The repetitive and exciting activity of the hands, the irresistible urge, the resolutions to stop, the intoxicating quality of pleasure, and the feelings of guilt link gambling and masturbation. Dr. Ralph Greenson, a prominent California psychoanalyst, has divided gamblers into three groups the normal person who gambles for diversion and who can stop when he wishes the professional gambler, who selects gambling as his means of earning a livelihood and the neurotic gambler, who gambles because he is driven by unconscious needs and is unable to stop. A neurotic gambler either feels lucky or wants to test his luck. Winning gives him a sense of power. He feels pleased, like a baby feeding at a breast. A neurotic gambler always loses because he tries to...
Are traders born or made There is no simple answer. Both aptitude and learning are important, but in different proportions for different people. At one extreme are born geniuses who require very little learning. At the other are gamblers and dunces, whom no classes are likely to help. The rest of us are in the middle of the curve, with some aptitude but in need of education. A genius has little need for a book because he has a fantastic feel for the market. A gambler is too busy getting high on adrenaline. This book is written for the trader in the middle.
Staying narrow, deep, and focused brings success in any business. It's competitive out there. Most investors select one or two types of property and one geographic area to specialize in. I began specializing in single-family homes and duplexes in a certain area of Nashville, Tennessee, and it's worked well for me. I have a friend who specializes in small apartment buildings another who just does preconstruction on condos another who just does new construction in Las Vegas another who just does small commercial properties in his area. I highly recommend that you stay narrow, deep, and focused to keep your possibilities limitless.
Our first project in order to understand stock market risk, particularly downside risk, is to identify exactly what the stock market is and determine the motivation of its participants. Stock markets at their best provide a mechanism through which investors can be matched with firms that have a productive outlet for the investors' funds. It is a mechanism for allocating available financial funds into appropriate physical outlets. At the individual level the stock market can bring together buyers and sellers of investment instruments. At their worst, stock markets provide a platform for gamblers to bet for or against companies, or worse yet, manipulate company information for a profit. Each investor in the stock market has different aims, risk tolerance, and financial resources. Each firm has differing time horizons, scale of operations, along with many more unique characteristics including its location and employees. 1. The first among these commanalities is the time horizon. For any...
The stock market of course has to do with money and I would hypothesize that the smartest minds in the world that are motivated by money either are found on Wall Street or in Las Vegas. Why is it, that many of these great minds are not so successful in cracking the secret of stock price movements I firmly believe it has to do with rational minds trying to battle emotional problems. What people buy and sell has very little to do with what they say they are doing (rationalizing) but more with what they feel. My work conclusively shows that these feelings are CYCLICAL.
Blackjack players understand this tactic intuitively When the odds are strongly in your favor, put down a big bet. In the eyes of many pundits, investors and gamblers have much in common, perhaps because both draw from the same science mathematics. Along with probability theory, mathematics provides another piece of the focus investing rationale the Kelly Optimization Model. The Kelly model is represented in a formula that uses probability to calculate optimization in this case, optimal investment proportion. (The model, along with the fascinating story of how it was originally derived, is presented in Chapter 6.)
The martingale category simply states that as the value of an account is decreasing, the size of following trades increase. The basic characteristic of the martingale is that as the account suffers losses, the ability to make up those losses either increases or stays the same. This is a popular type of money management for gamblers. As stated in Chapter 2, no type of money management can turn a negative expectation scenario into a positive expectation. As a result, gamblers are not trying to change the odds, but rather are trying to take advantage of streaks. Consider the following example.
This is a classic example of gamblers trying to take advantage of streaks. The only way they lose in this situation is if the streak lasts for 6 consecutive flips. However, this is still not a positive mathematical expectation. We discuss the mathematics of streaks later in the book. For now though, I think it is enough to let you know how the next set of 100 flips went. On the next 100 flips, there were 9 streaks of 3 consecutive flips heads or tails. Only 4 of them, however, generated an opposite result on the fourth flip. With those 4 streaks, the winnings were 16. Only one streak generated an opposite flip on the fifth flip of the coin. With that streak, 3 was added to the total, which now stood at 19. Two streaks ended on the sixth flip of the coin bringing in 1 per streak and the total to 21. There were two flips that lasted for more than 6 consecutive heads or tails. For each
A risk-averse investor does not avoid risk at all cost. She may gamble with small percentages of her wealth in hopes of attaining a significant but unlikely payoff. She can make the occasional trip to Las Vegas or Atlantic City and feed the quarter slot machines or take a seat at the two-dollar blackjack table. She also may participate in the Power Ball lottery in hopes of striking it big, even though she knows that the odds are greatly against her. With a small portion of her assets, she even may have purchased Internet stocks at their height in hopes of latching onto the next Microsoft or Dell.
By the same token, if interest rates on the world's reserve currency -or any other major currency -made a sudden quantum leap, said currency was suddenly much more attractive to hold and very unattractive to borrow or to sell short (they amount to the same thing). The trouble, for the gamblers, was that you cannot forecast interest rates. As casual observers, we often think we can forecast interest rates. But full- timers know better. Anyone who could do so reliably would soon be very rich and would have no need to forecast currencies or anything else, since they would be living the life of Riley, cutting bond coupons in the South of France. The roller-coaster ride in US interest rates and the dollar in 1980 could not be forecast and it gave the currency punting fraternity its first taste of what was to 24 become staple fare over the next half-decade - remorseless financial bereavement.
We never cease to be amazed how hard-boiled, highly intelligent, ruthless businesspeople behave in Las Vegas. Men and women who would never pay even one dollar more than the negotiated price for any product in their business will think nothing of losing 10,000 in 10 minutes on a roulette wheel. The glitz, the noise of the pits and the excitement of the crowd turn these sober, rational businesspeople into wild-eyed gamblers. The currency market, with its round-the-clock flashing quotes, constant stream of news and the most liberal leverage in the financial world tends to have the same impact on novice traders. Trading impulsively is simply gambling. It can be a huge rush when the trader is on a winning streak, but just one bad loss can make the trader give all of the profits and trading capital back to the market. Just like every Vegas story ends in heartbreak, so does every tale of impulse trading. In trading, logic wins and impulse kills.
Foreign currency trading is not just for gamblers or hungover commodity traders. It really has become a respected asset classification and is extremely popular with professionally managed trading entities and hedge funds. Foreign currency is so hot that major players are taking it to the extreme. How so Well, there is now what is called exchange traded funds (ETFs) on foreign currencies. The first to be introduced was the Euro Currency Trust (FXE). On the first day of trading, the Euro Currency Trust had over 600,000 shares trading hands.
The more trades you have running the more time you have to spend monitoring them The more stress youll feel the poorer
Gambling or investing What's the difference between a stock market gambler who loses and a market investor who wins Quite simple a market gambler is itching to trade and press that exciting deal button. And gamblers make up 90 of spread betting accounts that lose. Gambling is putting money on shares that you know nothing about. Buying something for a punt - with no trading plan in place. Don't have punts . Invest. Make money. If you have punts you will lose, maybe not right now but eventually. Punts are just lazy gambling.
Another chink in our cognitive apparatus is Richard Thaler's notion of mental accounts, mentioned in the last chapter. The Legend of the Man in the Green Bathrobe illustrates this notion compellingly. It is a rather long shaggy dog story, but the gist is that a newlywed on his honeymoon in Las Vegas wakes up in bed and sees a 5 chip left on the dresser. Unable to sleep, he goes down to the casino (in his green bathrobe, of course), bets on a particular number on the roulette wheel, and wins. The 35 to 1 odds result in a payout of 175, which the newlywed promptly bets on the next spin. He wins again and now has more than 6,000. He bets everything on his number a couple more times, continuing until his winnings are in the millions and the casino refuses to accept such a large bet. The man goes to a bigger casino, wins yet again, and now commands hundreds of millions of dollars. He hesitates and then decides to bets it all one more time. This time he loses. In a daze, he stumbles back up...
For instance, most analysts view the gaming industry as a simple balance of supply and demand. Bill takes the analysis to the next step, measuring how specific companies evolve through that landscape and asking new questions.What happens if you build more casinos in Las Vegas If the Mirage adds 100 new rooms, is that good for Harrah's, which sits right across the street
Monte Carlo simulation was named after Monte Carlo, Monaco, where the primary attractions are casinos containing games of chance. Games of chance such as roulette wheels, dice, and slot machines exhibit random behavior. The random behavior in games of chance is similar to how Monte Carlo simulation selects variable values at random to simulate a model. When you roll a die, you know that a 1, 2, 3, 4, 5, or 6 will come up, but you don't know which for any particular trial. It is the same with the variables that have a known or estimated range of values but an uncertain value for any particular time or event (e.g., interest rates, staffing needs, revenues, stock prices, inventory, discount rates).
The word speculate comes from the Latin specular, meaning to observe, as in spectacle (your glasses). We are not like gamblers, who enter a game they cannot win over time. All they can do is hope chance will run their way, not that of the house. We speculators observe how things should happen in the future, but because we know there are no guarantees, we protect our position with appropriate preservation of capital techniques, so we can win at our game. My career as a speculator began in the seventh grade when a kid named Paul Highland showed me how much money could be made flipping coins, matching quarters or odd man out for the shiny silver dollars we lugged around in our Levies. Growing up in Billings, Montana, was an excellent precursor to speculation. Flipping quarters was my start sure I lost some, but if there was anything I understood, other than my art classes and playing football, it was that there was plenty of real easy money to be made gambling for quarters and dollars.
Investors avoid stocks outside their circle of competence those who buy stocks outside their circle of competence are gamblers, speculators, or fools. If you lack the grounds for understanding a business grounds ultimately for estimating a gap between value and price but make a purchase anyway, you may as well be at a Las Vegas or Atlantic City blackjack table or a local poker party. All you are really doing is guessing, hoping, maybe even praying that things work out your way. Yet there is little reason, other than dumb luck, to think they will.
All things being equal, choosing Smith Co. or Jones Co. is a coin toss. It's looking at your situation and each company's fundamentals and prospects that will sway you. What if Smith Co. is an auto stock (similar to General Motors in 2005) and Jones Co. is a utility serving the Las Vegas metro area. Now what In 2005, the automotive industry struggled, while utilities were generally in much better shape. In that scenario, Smith Co.'s dividend would be in jeopardy while Jones Co.'s dividend would be more secure. Another issue would be the payout ratio (see later in this chapter). Therefore, having the same yield is not the same as the same risk. Different companies have different risks associated with them.
Huge positions of highly leveraged currency options and other derivatives. It is perfectly conceivable that persons such as he should exist. The smaller the number of speculative forays, the harder it is to identify true skill. The card player who can beat Las Vegas playing over 200 hands of cards over a day's span can be called skilled, but is the same true of a high roller who bets heavily and wins on one or two hands And indeed that was Soros's practice, according to his longtime associate Victor Niederhoffer If he has a chance to make a killing in a market, he is not afraid to put an important proportion of his chips into it. The amount of money he invested in speculation that the British pound would be devalued in 1992 represented a rather staggering proportion of his assets at the time. (I am relying on published accounts on this, as opposed to any knowledge I might have gained.) The result was fame and fortune. 8
The Black Jack Trading System derives its name from the popular Las Vegas card game of the same name. Black Jack is probably the only betting game where you can make sure that the long-term odds work in your favor and therefore allow you to beat the house in a consistent manner. When you are playing Black Jack, it is essential to know when to hold, when to ask to be hit with yet another card, and when to bet more or less aggressively (if at all). To accomplish this you must know
The industry standard for collection loss (rent or other charges that the landlord must write off as uncollectible) is typically 0.5 percent of rental income. This is another number that seems to be acceptable as a general rule however, savvy real estate investors make their own analyses of the actual collection loss they may experience based on the strength of the tenant, the strength and depth of the local job market, the average turnover of the area overall, the amount of security deposit they hold, and the nature of local tenant landlord laws. For example, collection losses for residential properties in the Las Vegas area often exceed 2 to 4 percent, and the continued advent of pro-tenant legislation in California and other major metropolitan areas foretells increased losses to landlords because of the inability to evict nonpaying or disruptive tenants. In a weak economic environment, collection loss can be even more significant, and prudent landlords take steps to make sure that...
Exactly what does it mean to think in probabilities, and why is it so essential to one's consistent success as a trader If you take a moment and analyze the last sentence, you will notice that I made consistency a function of probabilities. It sounds like a contradiction How can someone produce consistent results from an event that has an uncertain probabilistic outcome To answer this question, all we have to do is look to the gambling industry. Corporations spend vast amounts of money, in the hundreds of millions, if not billions, of dollars, on elaborate hotels to attract people to their casinos. If you've been to Las Vegas you know exactly what I am talking about. Gaming corporations are just like other corporations, in that they have to justify how they allocate their assets to a board of directors and ultimately to their stockholders. How do you suppose they justify spending vast sums of money on elaborate hotels and casinos, whose primary function is to generate revenue from an...
I surmise that most of the consecutive winning and or losing trade theories have made their way into the trading arena from the gambling industry. Gambling is a game of streaks. Any professional gambler will tell you that there is no way to turn the odds in your favor. Therefore, the money management schemes gamblers use come from managing the winning and losing streaks of the method. Earlier in the book, I gave an example of coin flipping and betting where the expectation was negative. There were times that manipulating the bet sizes according to streaks could increase the profits from betting according to those streaks. However, in other instances the outcome was worse as a result of the streaks. I do not profess to be an expert at gambling games and statistics. I do not gamble for the potential to make money from it nor for the sheer fun of it. I am not the kind of person who experiences a fuzzy feeling from doing something that is guaranteed to take my money over time. I find...
People get tips at parties, from the newspapers, and on TV, that glue-box of mass culture. Investment officers at slow-moving institutions may sit in a meeting all day before getting permission to buy or sell. They tend to place orders before the open. Most overnight orders come from casual investors, gamblers chasing hot tips, and brokers who want to leave work early to play golf or make marketing calls.
Others may say that money management marks out the line between gambling and trading. Even in gambling, the best blackjack players use money management. The words of the Kenny Rogers song The Gambler , you gotta know when to hold 'em and know when to fold 'em , is very similar to the trader's axiom of letting your profit run and cutting your losses short. The song goes on to advise would-be gamblers that they should know when to wralk away from the game, and be sure not to count their money while they're sitting at the table.
I rom what I have seen over the years, buying options on overpriced properties is the number one reason many people fail to make it in the real estate option investment business. And for most beginning option investors, overestimating the value of their first option property usually proves to be a very costly and often a fatal mistake, which generally marks the beginning of the end of their foray of investing in real estate options. You must understand that when you assign or sell a real estate option to a third party, what you are really selling is the property under option. This means that if the property under option has a purchase price that is right at or above market value, it will be nearly impossible to find anyone willing to buy your real estate option. I know an investor in Las Vegas, Nevada, who learned this lesson the hard way when he bought a one-year option for 10,000 on a former gas station, which had been sitting vacant for two years. This neophyte investor...
Casti believes that today we face the same problems as did the seventeenth-century gamblers trying to separate the stakes of a game that was stopped prematurely. Pascal and Fermat saw the problem and developed the mathematical structure that is now called probability theory. Complex system theory, says Casti, still awaits its Pascal and Fermat. 16
The lifetime prevalence of pathological gambling disorder in the United States is less than 3.5 percent.14 Recent neuroimaging studies demonstrate a hypoactivity of the reward circuitry in these individuals. Pathological gamblers are gambling to feel excitement, which they achieve by activating their uncommonly desensitized reward circuits. While behavioral therapy is one of the best treatments for pathological gambling, some medications can significantly decrease the frequency of gambling. The most effective medication treatment for pathological gamblers is naltrexone (ReVia),15 which is a mu opiate receptor blocker. In the reward system, mu opiate receptors stimulate dopamine release.16 Blocking opiate receptors with naltrexone decreases dopamine release in the nucleus accumbens, which results in decreased subjective feelings of pleasure.17 Gamblers taking naltrexone are not compelled to seek reward system stimulation through further gambling, possibly because they feel reduced...
Many people think of stock options as slot machines, roulette wheels, or dark horse long shots that is, as pure gambles. Others think of them as absurdly large inducements for people to stay with a company or as rewards for taking a company public. I have no argument with these characterizations, but much of the time an option is more akin to a boring old insurance policy. Just as one buys an insurance policy in case one's washing machine breaks down, one often buys options in case one's stock breaks down. They lessen risk, which is the bete noire, bugbear, and bane of investors' lives and the topic of this chapter. Although there are any number of books and websites on the Black-Scholes formula, it and its variants are more likely to be used by professional traders than by gamblers, who rely on commonsense considerations and gut feel. Viewing options as pure bets, gamblers are generally as interested in carefully pricing them as casino-goers are in the payoff ratios of slot machines.
Don't use your life savings. And don't use the money that you would use to pay your monthly bills. This is just a road to disaster. Traders who do this have the same mentality that gamblers have. Remember this Traders are not gamblers. If you must compare trading to gambling, then compare yourself to the casino owners. As a disciplined trader, you trade with probabilities on your side so that in the end, like the casino owners, you will come out way ahead.
Victor Niederhoffer looked at markets as a casino where people act as gamblers and where their behavior can be understood by studying gamblers. He regularly made small amounts of money trading on that theory. There was a flaw in his approach, however. If there is a tide he can be seriously hurt because he doesn't have a proper fail-safe mechanism.
The day trader's tools are a souped up computer and a fast connection to the Internet. These traders may work at a day-trading firm or trade from home. Imagine the attraction of a large screen with multicolored lights. Some lights are flashing indicating a chance to make some money. Add some bells and whistles and you have the Las Vegas casino environment. Indeed, if you are trading at a daytrading firm, then you are near others shouting for joy and anguish. If the Internet environment increases your psychological biases, imagine the amplification in the day-trader environment. Interviews with day traders yield quotes like it's very addictive and you lose sight of everything. Day-trading firms seem to recognize the psychological problems and the stress associated with day trading. Companies like Broadway Trading LLC offer counseling through a psychotherapy clinic. The nature of day trading is similar to casino gambling. Traders can become addicted. High stress and addiction can cause...
The stories of the hyper-successful traders are all the same in one respect. They spent their first few years finding out what risk they could handle -and the rest of their careers trading broadly within their capacities. Some traders never find their capacities. Markets that offer gearing (leverage) like the currency markets and futures markets bring out the gambler in people. This is the character inside us that is forever reaching for the card that is so high and wild he'll never need to draw another , as the Leonard Cohen song puts it or indeed reaching for the sky just to surrender -for surrender is what all gamblers have to do in the end, in financial markets. Successful traders (and successful poker players) are not gamblers they're probability players. If this sounds trite, I probably haven't expressed it is well as some traders have.
My favorite example is the Las Vegas casino. Let's say that you are playing blackjack and think that you have a superior card-counting strategy that will help you make money. By counting the number of picture cards vs. other cards that have been Such a strategy will work as long as the number of decks employed by the dealer is constant. If, however, the dealer intermittently and secretly changes the number of decks in the shoe, the card counting strategy would be imperiled. If the gambler assumed that twelve cards worth 10 or higher were left in the deck because eight had been dealt, the assumption would be faulty if two decks instead of one were being used. By changing the rules for dealing cards, the dealer creates a distribution that is nonstationary.
The put ratio spread can be used on a short stock position that has moved higher to repair a losing position and actually turn a potential loss into a profit. Assume we shorted IBM at 90 and it has risen to 94. We feel that IBM will recover and move back lower, but maybe not all the way back to 90 or below for a profit. However, we do feel that IBM will move back lower. Normally we could just sit on our short and try to reduce our loss by closing out the position on any dip in price. Another option chosen by many gamblers is to short another 100 shares of IBM in order to raise the breakeven point so that if IBM does dip, they can get out even or perhaps with a small profit. The reason we use the term gamblers for traders who double down on a losing short stock position is that they are simply doubling their risk on an already losing position. If the ship is sinking, why add more water Only gamblers in Las Vegas double down.
When trading, figuring out the market is only part of the battle. A far bigger challenge is dealing with yourself and your personality quirks and emotional demons. Most traders have a hard time keeping their trading ego in check. The best trader in natural gas (we'll call him MVP) happens to work for MBF and is like a brother to me. This is a man who would never gamble more than 50 or 100 on a hand of blackjack at a casino. I think that if he ever lost more than 500 or 1,000 in Atlantic City or Las Vegas, he would kill himself. Yet, this same person thinks nothing of trading hundreds of natural gas contracts at a time and doesn't bat an eye over having hourly profit and loss swings in the six figures.
Gambling parlance distinguishes between payoffs stated as for and to. In a 35-for-1 payoff the casino keeps the wagered amount and pays the bettor 35 for each dollar wagered. In a 35-to-1 bet, in Atlantic City or Las Vegas, the winning bettor keeps his or her wager and is paid 35 for each 1 gambled. 5. The house expects to lose one single-number bet out of each 38 and to pay 35 to 1. By taking in 37 from losing bettors while paying out 35 during these 38 bets, the house expects to win the difference of 2, or 5.26 percent (2 38), out of each 38 wagered. At the end of any day, week, or month, as long-run expected and actual results narrow, casinos take in almost exactly 5.26 percent of every dollar wagered on roulette.
Among the unproductive members, along with landowners Petty places those who 'uselessly waste their time studying Latin and Greek', theologians, doctors, lawyers, gamblers, cheats, prostitutes and beggars. Elsewhere he adds philosophers, people in entertainment and also domestic servants but he considers work that helps to advance man's knowledge of nature important.17 Soldiers and traders do not appear among the productive jobs. But in another passage Petty declares that traders and soldiers along with seamen, artisans and farmers are the pillars of the nation. This led Marx (only regarding soldiers) and Johnson to think that Petty was placing these two groups among the productive workers. However, not only does Petty classify them elsewhere as unproductive, but he also explains that traders do nothing but transport goods produced in agriculture and industry 'as the veins transport blood' and they are like gamblers on the work of others.18
This is a favorite expression of pit bosses in Las Vegas and is a subset to the idea that rich people don't bet big. That's the favourite expression of Las Vegas pit bosses, and it's dead wrong. There is not that much difference between gambling and speculation. The big compelling contrast is that gamblers can never get a leg up on the game, the odds are against them all the time (unless they count cards and play blackjack). It has always amazed me that in a game where the odds are against us, we flock to the table to play. Las Vegas stays open 24 hours a day for a simple reason players won't quit and in any endeavour where you have an advantage, especially a slight one, the longer you play the more certain you are of winning. So they never stop. To casinos, the public is the bank account they tap every minute of every day Weaknesses of the Pit Boss Adage. Pit bosses are supposed gurus of gambling knowledge after all, they have seen it all. But the advice that to make a thousand you...
Compulsive gambling is defined in the psychiatric annals as a progressive disorder characterised by a continuous or periodic loss of control over gambling, a pre-occupation with gambling, and obtaining money with which to gamble, irrational thinking, and a continuation of the behaviour despite adverse consequences. (Source Dr Rosenthal (Psychiatric Annals) February 1992) While I have acknowledged that there is a distinction between gambling and speculation, there is little difference between compulsive gambling and compulsive trading. Compulsive trading is perhaps the most pernicious of all self-sabotaging behaviours and traders have a tendency to use the euphemism overtrading when in fact it is much more serious. Theoreticians identify four phases of compulsive gambling trading. It will help you to watch the biographical video or read the book entitled Rogue Trader, the story of Nick Leeson and how he destroyed Barings Bank through employing a gambling style of trading in the SIMEX...
This is a vital concept for all speculators, it is a concept to build a belief system on, but the concept itself cannot be built on a belief. Casinos don't operate on a belief. They operate, run their business, on pure math they know that eventually the laws of the wheel or dice will prevail. Thus they keep the wheels spinning. They don't mind waiting, they don't stop. They also play 24 hours for a reason the longer you play their negative expectation game, the more certain they are of getting your money. I guess that is why I have always been amused by people who think they can go to Las Vegas to tap the casino's bank. Casinos look at you and me as fodder for their bank accounts, and judging from the size of the megahotels as well as stock performance, they are on the right side of the ledger. Casinos don't close for another reason the players won't quit. Players overtrade, in our vernacular. We are not casinos but we can sure learn a great deal from them. We need to know for sure...
When I enter a fresh momentum position, I will expect some profit-taking, especially with stocks that have good earnings reports because it seems gamblers are always willing to buy into a stock in anticipation of good earnings, and so after the report, they take their profits. This is the time to look at your trade in light of the 200-day chart and consider the long-term upside potential. We have some protection against dips because of our long-term outlook and we should be willing to ride a good company for a few years if need be. Personally, I have found momentum investing to make incredible profits fairly fast.
Why is it important Well, we are in the business of making money, and in order to make money we have to learn how to manage it. Ironically, this is one of the most overlooked areas in trading. Many traders are just anxious to get right into trading with no regards to their total account size. They simply determine how much they can stomach to lose in a single trade and hit the trade button. There's a term for this type of investing it's called GAMBLING When you trade without money management rules, you are in fact gambling. You are not looking at the long term return on your investment. Instead you are only looking for that jackpot . Money management rules will not only protect us, but they will make us very profitable in the long run. If you don't believe me, and you think that gambling is the way to get rich, then consider this example People go to Las Vegas all the time to gamble their money in hopes to win a big jackpot, and in fact, many people do win. So how in the world, are...
If you know how to count cards in blackjack, you can have an edge against a casino (unless they detect you and throw you out. Casinos love drunk gamblers but hate card counters). An edge lets you win more often than you lose over a period of time. Good money management can help you make more money from your edge and minimize losses. Without an edge, you might as well give money to charity. In trading, the edge comes from a system that delivers greater profits than losses, slippage, and commissions. No money management method can rescue a bad trading system.
Robert has had success in Las Vegas (of all places ) with smoke-free apartments. After a long day at work in a smoke-filled environment, a health-conscious nonsmoking resident doesn't need to have smoke wafting into her rental unit from her neighbor's. Although there are additional costs upfront in thoroughly cleaning, completely repainting, and installing all new flooring and window coverings, the demand (and thus the occupancy) for these units is high.
Increasingly dependent on drugs and disenchanted with business, politics, and Hollywood, Hughes took up residence at the Desert Inn Hotel in Las Vegas. At the time, Las Vegas was in a slump. When the Desert Inn decided they could make more money renting out Hughes's floor to tourists, they tried to evict him. He responded by buying the hotel. Then he bought more hotels and casinos in Las Vegas, Reno, and the Bahamas. Former FBI agent Robert Maheu oversaw Hughes's business interests in Las Vegas, and defended his employer's approach When he came here, he wanted to tie up all the property on the Strip to develop it properly. He didn't want it to be honky-tonk or Coney Island. Hughes was a catalyst in the city cleaning up its act.
Individuals tend to be risk averse in gains but risk lovers in losses. After earning a profit, people are willing to take more risk. This is described as the house money effect by gamblers because of the known tendency to play more carelessly with winnings than their original money. Similarly, investors may invest their profits into riskier securities.
Casinos make consistent profits day after day and year after year, facilitating an event that has a purely random outcome. At the same time, most traders believe that the outcome of the market's behavior is not random, yet can't seem to produce consistent profits. Shouldn't a consistent, nonrandom outcome produce consistent results, and a random outcome produce random, inconsistent results What casino owners, experienced gamblers, and the best traders understand that the typical trader finds difficult to grasp is even that have probable outcomes can produce consistent results, if you can get the odds in your favor and there is a large enough sample size. The best traders treat trading like a numbers game, similar to the way in which casinos and professional gamblers approach gambling. To illustrate, let's look at the game of blackjack. In blackjack, the casinos have approximately a 4.5-percent edge over the player, based on the rules they require players...
As rich dad said, Investing means different things to different people. While the above statements reflect different types of investment products and procedures, rich dad did not invest in the same way. He said instead, Most people are not investors. Most people are speculators or gamblers. Most people have the 'buy, hold, and pray the price goes up mentality.' Most investors live in hopes that the
A newcomer to the market faces three paths that lead into a forest full of treasures and dangers. The first path, for investors, goes through the sunniest areas. Most of those who take it come out alive, if not much richer. Another path, for traders, leads into the heart of the forest. Many travelers disappear, but those who come out look rich. The third is a shortcut that takes gamblers into the swamp. How can you tell which path is which You must choose your way carefully because if you don't, you'll end up on the gamblers' path, especially since it crosses both investors' and traders' trails. We'll return to this question in the chapters on trading psychology.
True day traders are not gamblers they are professional speculators playing the odds. Thus, they do not follow the herd and they tend to look at things from a contrary perspective. If someone gives a day trader a tip to buy a stock, he does not immediately start thinking about why he should consider buying the stock, he thinks of all the reasons he would likely not want to buy it. He might even look at it as a short-sell candidate.
To be practical, a risk evaluation must use the performance profile of the system being traded. That includes the size of the profits and losses, as well as the amount of risk the investor is willing to accept. The following formula, from Ralph Vince's Portfolio Management Formulas (New York Wiley, 1990) is a summary of P. Griffin's work, The Theory of Blackjack (Las Vegas Gamblers Press, 1981) and a fair approximation of risk
The game of blackjack or 21 evolved from several related card games in the 19th century. It became fashionable during World War I and now has enormous popularity, and is played by millions of people in casinos around the world. Billions of dollars are lost each year by people playing the game in Las Vegas alone. A small number of professionals and advanced amateurs, using various methods such as card counting, are able to beat the game. The object is to reach, or be close to, twenty-one with two or more cards. Scores above twenty-one are said to bust or lose. Cards two to ten are worth their face value Jacks, Queens and Kings are worth ten points and Aces are worth one or eleven at the player's choice. The game is called blackjack because an ace and a ten-valued card was paid three for two and an additional bonus accrued if the two cards were the Ace of Spades and the Jack of Spades or Clubs. While this extra bonus has been dropped by current casinos, the name has stuck. Dealers...
In the casinos of Nevada, there is an ancient game of Keno where twenty numbers are picked from one to eighty. Fifteen-point Keno, where you try to pick fifteen out of twenty numbers, pays 100,000 for a 1.00 ticket. What are your odds of winning Your true odds are over 430 billion to one. Of course, no one has ever hit the fifteen-spot Keno, and they never will, but thousands of gamblers keep trying.
Assume you have analyzed and researched the stock of XYZ and have decided that the stock will move higher over the next few months. Your reasons could be based on technical analysis or fundamental analysis or a combination of the two. You have established a theme for your investment in XYZ. Your theme is that you are bullish on XYZ for specific reasons and you wish to make an investment that will profit from the impending rise in price of XYZ over the next few months. In other words, you have developed a plan of attack on XYZ. Most investors do not see trading as developing themes and plans for attack, but investing without any plan or theme is simply throwing money around like a gambler would do at Las Vegas, moving from table to table. Therefore, like expert chess players who select an overall theme to their opening strategy and move each piece in furtherance of this plan of attack, the option trader must also develop a trading plan for each position.
Unfortunately, trading often appeals to impulsive people, to gamblers, and to those who feel that the world owes them a living. If you trade for the excitement, you are liable to take trades with bad odds and accept unnecessary risks. The markets are unforgiving, and emotional trading always results in losses.
In trading, these equity swings can range anywhere from a few thousand dollars based on trading single units to tens of thousands of dollars trading single units. Leverage Is what makes these things so Important to traders. When a trader begins trading an account with 20,000 and there Is a possible drawdown of 20,000 with the markets and methods being traded, that trader Is taking a very big gamble. Drawdowns can effectively render an account deceased.
For some investors the excitement of quick gains can become addictive. Pathological gamblers, whose disease is an addiction to the thrill of risk and opportunity, secrete a large surge of opiates in their limbic systems just before they gamble. Pathological gamblers are most likely to gamble if they are home alone, in the evening, thinking about their finances. These can be depressing circumstances, and endorphin release provides a quick pick-me-up.
Great traders have proven time and again that they can consistently win by speculating when the odds are in their favor. They have the ability to correctly assess and integrate a risk-reward ratio that statistically favors a profitable outcome. The outcome is based on a statistical distribution, whereby the probabilities are measurable when the same strategy is employed consistently. Both novices and professional traders often confuse speculation with gambling. Speculation is derived from probabilities pure gambling, on the other hand, is based on hope. Gambling is a less than zero-sum game in which the outcome is not based on any measurable probability. Traders sometimes gamble with positions, and gamblers sometimes count cards and play when the odds are stacked in their favor. When you become aware of the difference between speculation and gambling in trading, you'll be able to repeat profitable trading scenarios while cutting out blind gambling shots. In gambling, the house is the...
After people have experienced a gain or profit, they are willing to take more risk. Gamblers refer to this feeling as playing with the house's money. After winning a big profit, amateur gamblers don't fully consider the new money as their own. Are you willing to take more risk with your opponent's money or your own money Since gamblers don't fully integrate their winnings with their own money, they act like they are betting with the casino's money. Professional gamblers probably do not suffer from this bias. One of the characteristics that makes you able to successfully gamble (or trade stocks) for a living is the ability to overcome emotional biases.
Never invest what you can't afford to lose. If you don't have the necessary starting capital all at once, set aside a small portion that you will dedicate solely to FOREX trading. In fact, even if you have a fair amount of money available to assign to your trading, break it into equal portions, and use only one portion at a time. In this way, if things go wrong, you still have another portion to start over, and your risks are minimized. Trading is not gambling. Despite the high leverages available, where you can risk all your account and reap a handsome profit, this would be based on luck, and luck is for gamblers. Trading is a business, and as such, it has to be undertaken with clear goals and asset administration.
Trading with proper money management rules will not guarantee you success, but it will prevent you from falling into the money trap. The more I bet. the more I win mentality is not for traders but for gamblers, and using their logic is a sure road to ruin. Avoiding this trap simply means learning to manage your losses by using simple guidelines
Casinos make consistent profits day after day and year after year, facilitating an event that has a purely random outcome. At the same time, most traders believe that the outcome of the market's behavior is not random, yet can't seem to produce consistent profits. Shouldn't a consistent, nonrandom outcome produce consistent results, and a random outcome produce random, inconsistent results What casino owners, experienced gamblers, and the best traders understand that the typical trader finds difficult to grasp is Event fhat have probable outcomes can produce consistent results, if you can get the odds in your favor and there is a large enough sample size. The best traders treat trading like a numbers game, similar to the way in which casinos and professional gamblers approach gambling. To illustrate, let's look at the game of blackjack. In blackjack, the casinos have approximately a 4.5-percent edge over the player, based on the rules they require...
Futures markets have prospered because they serve two groups that have a great deal of money. On the one hand, futures permit major commercial producers and consumers to hedge price risks, giving them a fantastic competitive advantage. On the other hand, futures offer speculators a gambling palace with more choices than all the casinos in Nevada. Between the hedgers and the speculators, on a ground richly soaked with blood and money, are professional futures traders. They help move the wheels of commerce and take a fee for their services. A sign of their profitability is the fact that many of those public servants pass their craft to their sons and now occasionally even to their daughters. The mortality rate among futures traders is over 90 percent, even though brokerage houses try to hide statistics. Easy margins attract gamblers and adrenaline addicts who quickly go up in smoke. There is nothing wrong with trading futures that money management won't cure. Futures are very tradable,...
Though I usually cringe at the thought of comparing Forex to anything gambling related, sometimes it is easier to do so for conceptual purposes. Please remember that by following sound trading principles Forex IS NOT gambling, though for some traders (judging by the way that they do trade) the line between gambling and speculation is rather gray. I am using the popular casino game to help describe this trading tactic - I hope you understand. Let's look at the casino game to compare it to Forex for the purpose of learning this technique. In Roulette gamblers have strategies to win, but to make a long story short, the only sure fire way to win at Roulette is to be the owner of the casino, not the gambler. Ultimately the odds favor the casino over the gambler. Gamblers do have strategies applicable to the red black aspect of the game but in the end statistically they'll loose. The two most common strategies are to play the opposite colors from the prior winning color, especially after a...
Another money management tool used by system traders is the Kelly formula. John Kelly, an employee for AT&T's Bell Laboratory, originally developed the Kelly criterion formula to assist AT&T with its long distance telephone signal-noise issues. After his method and formula were published as A New Interpretation of Information Rate (1956), believe it or not, the gamblers and oddsmakers realized its potential as an optimal betting system in horse racing. It enabled gamblers to maximize the size of their bets on consecutive races and was used to help in determining how much to parlay winnings into the next bet. The system is, as you can guess, used by many traders as a money management tool with the same goals in mind to try to determine how much money to place on the next trade. There are two basic components to the Kelly formula
Intuitively, gamblers know that a run of three heads in a row does not occur very often. This is true. Similarly, roulette players know that a run of three blacks in a row does not occur very often. But do these runs alter the odds of winning the next coin toss or the next spin of the roulette wheel How might a gambler use this knowledge for the next bet The proper use of knowledge of this kind and, more important, how similar decisions arise in selecting investments comes from understanding what is, and is not, predictable about random events. Let's return to the question of a gambler's odds after observing a run (a sequence of one kind of outcome). Gamblers often devise betting schemes based on reversals or runs. After observing a sequence of one result say, three consecutive coin tosses that land heads or three consecutive spins of a roulette wheel that land on black they adopt a particular betting strategy. Some gamblers infer that it is not a good bet to expect still another head...
Your beliefs can change to be consistent with your past decisions. You want to feel like you made the right decision. For example, racetrack gamblers were surveyed about the odds of their horse winning. Bettors just leaving the betting window gave the horses they bet on a better chance of winning than bettors standing in line to place their bets.4 Before placing the bet, you feel more uncertainty about your chances. After placing the bet, your beliefs change to be consistent with your decision.
Not import nor export this list includes the most common artisans a third category, the useful one, also listed, is made up of the labours who export wares. In 1558 Luis Ortiz called for the idle rich, soldiers, domestic servants, vagabonds, students, jurists and men of letters to be put to productive work, that is, to the 'mechanical arts'. His classification of the unproductive members of society is very similar to the one that would be suggested more than a hundred years later by Petty, and more than two hundred years later by Smith. In 1564 Giovanni Maria Memmo, while defending artisans (see chapter 5), wrote that not only procurers, gamblers, buyers-up and usurers, but also clowns, perfumers and confectioners should be banished.9
Gambling The trader, through repeated losses, negative mental attitudes, and an undisciplined approach, commences gambling in the market under the impression that he is speculating. It is important that the trader has an understanding of the fine line between gambling and speculating. Some traders use these words synonymously and while they say that there is a difference between speculation and gambling, they don't really understand the difference. Once a trader understands the subtle differences between gambling and speculation, it will help the trader to avoid pure gambles and develop a discipline which employs intelligent speculation. So what is the difference Gambling involves games of chance where probabilities remain constant. For example, if you played pontoon (also known as blackjack and twenty-one), say 20 years ago, your probability of drawing a given hand out of the deck of 52 cards is identical across all time periods. The probabilities will remain the same whether you...
It's amazing the misconception that people have about gambling in a casino. Most are shocked to learn that casinos have only a 1 to 1V2 percent statistical advantage over the player in both blackjack and craps but are still able to generate huge profits. Furthermore, these gaming establishments must spend millions of dollars on luxurious attractions and outlandish accommodations. Only in Las Vegas can you find volcanoes, shooting springs, replicas of the New York skyline, the Eiffel Tower, and the Venice canals. If you've ever spent any time in a casino, you are familiar with the term comp. The casino rewards its patrons primarily for the amount of time they spend at the tables and not for the size of their wagers. The house knows that the longer they can keep the player gambling, the greater the chance that their statistical edge will kick in. Basically, the more time you spend at the tables, the more bets you are going to place, and the greater the probability that you will...
Here is the answer Apart from the flat-out gamblers who are in the markets, many, many traders have read and studied intently everything they could afford to buy or send off and Beyond the scope of my current thought is what will happen to such things as commercial TV while those who used to watch it sit down to trade instead of watching Monday night football. Will we turn into a world of gamblers Who needs the lotteries when he can throw his money away on a chance to get rich in the markets
Risk management is a subject that is so broad that the only thing I can do is to encourage others to read widely on the subject. The best places to look for information on risk management are the books written by successful gamblers. In general, risk management involves those actions taken by you that increase or decrease you chances of losing.
What Do Gambling and Trading Have In Common More than you think. Blackjack is the only gambling game that is not determined by chance alone. The shrewd player can influence the outcome by counting the cards. The fact that most casino visitors unconsciously aim at losing (the gambling addicts) or play for the thrill creates chances for the rational gambler, the one who sits down at the blackjack table well-prepared and poised to win. They are in Business Successful gamblers and traders pursue their goals as a business, not as a leisurely pursuit. For gamblers from blackjack to horse racing as well as all traders, making serious money demands they get serious. As a result, they take a completely different approach towards betting from people who enter these endeavors for
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