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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Professional GAMBLING Vs Stock trading, Mathematics and Digging your own grave

Professional GAMBLING Vs Stock trading, Mathematics and Digging your own grave

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hunter

hunter
Moderator
Moderator
We are going through a very interesting period of time. There are lots of talks about casinos and gambling and at the same time, there are lots of talks about the stock market as well.
A long time ago, I remember seeing some posts debating the difference between gambling and trading.

Here, I am trying to make an effort to help us understand related topics better, for our own betterment.

Let's start with a question.
Is there a difference between gambling and trading?
My answer is;
YES but at the same time NO!

Let me arouse your curiosity through an example.

We know that some day, for sure, we will get our grave. Right?
But, do we have any control over it? Usually, no.
I mean;
Our grave is dug by someone else. We will have no control over it, even if we wanted, since we are dead by that time.
ok?
Gambling is exactly like that. Our destiny regarding the grave is already decided by someone else.

Now imagine, you somehow want to take things in to your control, while you are living; and decide to dig your own grave, the way you want it; and make arrangements to use it for you when the due time comes.
Stock trading is exactly like that. You have the CONTROL over the whole thing!
.
But,
.
Anyway, the end result will be the same: you will only get a place 6 feet below the ground level!!

However the two methods used are different;
In method-1, you have no control over how much you will loose in the long run; it is fixed.
In method-2, you have the total control of how much and how fast you can loose.

But the ultimate result will be the same!
.
.
OR is it???

Is gambling worse than trading? or is it the other way round?

Well, my understanding is that it is up to us;
it is up to us to make trading worse or better than gambling.

Depending on our understanding of the markets and 'feeling' of mathematics, we will find trading is better or worse.
(I purposely used the word 'feeling'. because knowing and feeling are different skills)

Now,
Do you guys think it is worthwhile to initiate a long mathematical exploration to find out what makes the difference?

If so, we can continue this discussion to have a closer look at the following;
* Probabilities
* Random approach
* Methodical approaches: martingale, reverse martingale,  Labouchère systems, Reverse  Labouchère systems, scaling in, scaling out.
* Turning the tables to our direction; i.e. Controlling the probability of the outcome.

Let me know your interests.
Wink

Kithsiri

Kithsiri
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Love initiation of such lively discussions.
Thanks.
(Unfortunately none can comment with certainty of the effects of Previous Karama which are manifested in the form of so-called Luck).
Hoping to see a lively discussion here. Very Happy 

D.G.Dayaratne


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Stock trading  you can take calculated risk

gambling depend mostly on luck

 But i know a engineer friend of mine use his maths knowledge
(Probability Theory) and play Casino. and earn money,

The Alchemist


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
If you are interested in above subject, get and read the Book,
Bringing Down The House by Ben Mezrich.
Its a true Inside story of 6 M.I.T. Students who took Vegas for Millions ! A Superb Book. I could not put it down !

hunter

hunter
Moderator
Moderator
@D.G.Dayaratne wrote:Stock trading  you can take calculated risk

gambling depend mostly on luck

 But i know a engineer friend of mine use his maths knowledge
(Probability Theory) and play Casino. and earn money,
Any idea what game he plays?
Blackjack could have some chance in the long run as I know.

K.Haputantri

K.Haputantri
Co-Admin
@D.G.Dayaratne wrote:Stock trading  you can take calculated risk

gambling depend mostly on luck

 But i know a engineer friend of mine use his maths knowledge
(Probability Theory) and play Casino. and earn money,
Fibs analysis used in stock trades is also based on natural laws of probability.

Kithsiri

Kithsiri
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Mathematically, it is possible to win as well as recover your losses if you keep doubling the bets.
(That is why the Gambling Dens always have a maximum upper limit in place).

hunter

hunter
Moderator
Moderator
@The Alchemist wrote:If you are interested in above subject, get and read the Book,
Bringing Down The House by Ben Mezrich.
Its a true Inside story of 6 M.I.T. Students who took Vegas for Millions ! A Superb Book. I could not put it down !
I started reading. Looks like a very nice one. Thanks for suggesting.

hunter

hunter
Moderator
Moderator
@Kithsiri wrote:Mathematically, it is possible to win as well as recover your losses if you keep doubling the bets.
(That is why the Gambling Dens always have a maximum upper limit in place).
Well, that's what I mean by martingale system. (Scaling in or averaging exponentially). But it is proved to be a very very risky method.
In my view, not worth considering at all for 'fixed probability', independent event games such as gambling.

Even for share market, I consider this is too risky. There are better techniques.

Slstock

Slstock
Director - Equity Analytics
Director - Equity Analytics
I think they made a film of this. But some material in the book is supposed to be fabricated/exaggerated. Anyway should be a very good read.

@hunter wrote:
@The Alchemist wrote:If you are interested in above subject, get and read the Book,
Bringing Down The House by Ben Mezrich.
Its a true Inside story of 6 M.I.T. Students who took Vegas for Millions ! A Superb Book. I could not put it down !
I started reading. Looks like a very nice one. Thanks for suggesting.

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
@hunter ... Gambling or "games of chance" as they are commonly known in the gaming industry have closed form solutions

Share markets have open ended solutions.

Closed - form solution -->> defined probability .... as n -> infinity .... sample probability -> true probability. So if the true probability is biased in the favour of the "House" in the long run the "House" cannot lose.

Open - form solution -->> no defined probability (has to be modeled by a stochastic random process i.e. Brownian motion used in Black Scholes formula)

-----------------------

Casinos in Aus have what is called the minimum capital requirement i.e. $75 million. So casinos cannot have surplus capital below that limit. If XYZ has $100m then they only have a $25m "buffer".

As mentioned before the "probability of ruin" is different to the "probability of game". The more capital you a lower "probability of ruin".

stumpy

stumpy
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
This is how I differentiate:

Gambling > Edge is with the Gambling House
Trading > Edge is with you! Simply you're operating the Gambling house!

Investing > Totally different game! Long term gains are far more superior than both trading & gambling, only if you know what you're doing! Very Happy

Slstock

Slstock
Director - Equity Analytics
Director - Equity Analytics
Fantastic... you summed up in a short and correct way

@stumpy wrote:This is how I differentiate:

Gambling > Edge is with the Gambling House
Trading > Edge is with you! Simply you're operating the Gambling house!

Investing > Totally different game! Long term gains are far more superior than both trading & gambling, only if you know what you're doing! Very Happy 

hunter

hunter
Moderator
Moderator
@stumpy wrote:This is how I differentiate:

Gambling > Edge is with the Gambling House
Trading > Edge is with you! Simply you're operating the Gambling house!

Investing > Totally different game! Long term gains are far more superior than both trading & gambling, only if you know what you're doing! Very Happy 

Ha ha; Spot on Buddy!

Let me add my view as well..

Gambling > Gambling House has made the games so that Edge is with the Gambling House
Trading > You have the opportunity to make the Edge is with you! Simply you're operating the Gambling house!

It is interesting to study how we can do it.
I feel @rainmaker has brought up the theory behind this.

stumpy

stumpy
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
Agreed Very Happy

hunter

hunter
Moderator
Moderator
Some believe we can beat the gambling house by using some betting system (such as doubling system).
There is a nice article I read recently. I like the way he has explained and his approach to bust the myth. Here's the link

(The Truth about Betting Systems)
http://wizardofodds.com/gambling/betting-systems/

Even in trading, only way out is to have odds (higher probability) in your favor.

gamaya


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
In CSE I believe there are certain people who have access to unlimited amount of info. such as the distribution of shareholding, the amount of credit and upcoming rights issues, major changes in company policy, the actual financial situation of company (not the picture given in audited statements. ex: CIFL,twod)

And the Company directors are allowed to deal their own company shares. Sometime they disclose months afterwards. And nobody have received punishment for insider trading or manipulations.

The insiders know the cards whilst others play blindly. In this scenario minority shareholders have a better chance at a gambling house.

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