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unprofitability is unpredictable based on past performance. On the other hand, the manipulated statistical advantage enjoyed by casinos will consistently produce profits forever, provided that limits are set on how high a bet can be made so that one bet will not bankrupt the house. That's the reason why every game in Las Vegas has an upper limit on how much you can wager on any one bet. There will be short-run fluctuations in profitability based on normal, 2 or 3 standard deviations from the mean, but in the long run, the casino will get all the money. That is why casinos are open 24 hours a day, 7 days a weekto get into the long run and handle as many bets as possible. That is how you play a game where you have the edge, get into the long run by taking as many bets as possible and never risk more than a small percentage of capital on any one bet. |
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Neal: What do you think of system traders? |
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Phantom: As I mentioned previously, I think trading a mechanical system which has been back-tested provides certain psychological benefits inasmuch as the trader has some idea of how the system performed in the past, such as worst drawdown, worst consecutive series of unprofitable trades, percentage of profitable trades, etc. Some individuals require this type of psychological crutch, sort of like wanting to know how far they will fall before they land if they jump into a black hole. The downside of following a mechanical system is that you must take every trade and not second-guess the system. This becomes very difficult to do. When you have those three or four losers in a row, you start to hesitate pulling the trigger when the next trading signal presents itself. Referring back to my previous analogy, trading a mechanical system for me is like fighting a war by following a military textbook that tells you how to position your troops, when to attack, and so forth. A battlefield is dynamic and fluid, just like the market. You must have the capacity to react quickly and decisively and improvise if need be. Following a prescripted battle plan limits your flexibility and capacity to improvise just like trading a mechanical system. Personally, I did not evolve into a more profitable trader by having a computer massage |
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