This entry has now been placed in a series we are doing regarding the fact that Trading? IS Gambling. And thus this post continues from the previous post in that series …
We run into this issue with many new traders. They wish to argue that with some sort of “analysis” or “technical overlay”, they can predict the future and therefore they are not “Gambling”. After all … they have a “system”.
Wrong.
You cannot predict the future.
This is not an opinion. This is science.
I need not bore you with all the technicalities surrounding Complex Adaptive Systems (CAS) and discrete quanta released onto complex systems (which is what is occurring with financial markets, every second of every day). We don’t have to get into Power laws, Agent Based Models for collective entities, or volatility clustering and autoregressive conditional heteroskedasticity (ARCH) models.
If you want the mathematics? To be sure, there are more scholarly papers written on this fact and topic, that can be provided. It proves what we have been saying.
But you don’t need the mathematics.
You know this is true, in your day to day life.
Look at the weather. Like the markets, another complex system.
How many times in your life? Has the weather-person gotten it wrong with their ‘Forecast’? Called for snow? It was sunny all day. Called for rain? Clear skies. And vice versa. Despite their doctorates in mathematics and meteorology. Sure, they get it right many times. And in recent decades, more often than not. But at times?
They get it wrong.
Because they cannot predict with any certainty with a system as complex as the weather. And the farther in time we look on any complex system? The worse any ‘prediction’ becomes. We do not need to be mathematical geniuses to understand “The Butterfly Effect“.
We can only deal with probabilities.
In fact, you want to know a little secret on with “Weather Forecasts”? Someone with their actual Doctorate in Meteorology would prefer to not give you a “specific temperature” prediction for any given day. No Doctor of Meteorology prefers to say “It’s GOING to be 77º F / 25° C in this city at this specific time”. What they would prefer is to use a probability range of temperatures. Something akin to “It may be between 74° to 80º F / 23° to 27° C”.
Then why do they give specific temperatures on broadcasts? Quite frankly? News media producers feel they need to dumb it down for their audience. Producers want something specific to show the audience, so they pick the mean of the probable range of temperatures.
This is all to say, unless you are God (and you’re not), you cannot predict the future. We can deal in probable ranges. And that’s it. Some “red-light, green-light”, linear, squiggly line or arrow on a chart, is most definitely not going to predict the future. As “The Baron” stated in the last entry? If you do happen to be accurate with a series of “calls”, it was blind luck, and that’s all. You have no idea what the next turn of the card, will be.
If you flip a coin 10,000 times, invariably, you’re going to get a long string of “heads” in a row. That doesn’t mean anything, statistically speaking.
And we say all of the proceeding, to make the point.
When you place a trade? Or a series of trades? You are gambling. Pure and simple. After all, what is the definition of gambling?
Wagering something of value on an unknown, future event with the intent of winning something else of hopefully greater value.
Which is exactly what we are doing, when we are trading. There is no arguing this point.
You cannot predict the future. And thus, trading … is gambling.
We will continue this entire discussing in the next entry … “Gambling Does not Require You to be a Degen …”