Saturday, March 22, 2008

From Gambling To Winning The Financial Markets


Gambling, a term loosely applied by those who understand little of mathematics particularly in the area of statistics or probability, implies playing a game with negative expectancy. People in general like to make assumptions about subjects that they do not fully understand, therefore justifying apathy, despair, often via past personal failures.

Why Most People Fail

Trading the financial markets, relevant knowledge separates the winners from chumps. Like any industry, a few industry leaders make the bulk of profits, followed by a whole lot of trend following losers. The markets do not offer an infinite sum of payoff for the players, hence the first come first serve phenomenon. If you follow the general crowd, and play the game like everybody else, then of course this feat qualifies as “gambling” as the public, uninformed mass plays with a negative expectancy.

Playing To Win

It takes creativity, intelligent planning, and flawless execution just like all other good things in life. Statistics, stochastic calculus, general probability papers serve as few of many subjects of study to help in the quest for wisdom. Alongside this, you must also read up and learn how the financial exchanges work, along with correlations between them. Only after all this, could connections become realized, and winning edges created.

The financial markets resemble that of a war field, where casualties result from loss in money and pride, and the winners get the loot. The Art of War was one of the most helpful books I had ever invested in years ago. According to Sun Tzu, you should only fight, when you win.

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