Is it Possible to Name Day Trading a Game of Chance?

Updated: 02/02/2007 11:29
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Yes, it is. Why can we do this? We should determine first what a game of chance is to answer this question. Playing in a game of chance is staking anything on the chance. For the comparison of day trading and games of chance I intend to compare two types of trading and two types of games of chance.

In the article we will examine one of the most extended types of the games of chance practiced in the casino, namely, the roulette which undoubtedly is familiar to the readers. The roulette has fixed chances of the gain and fixed payments.

For day trading I selected trading of mini futures Dou ($5) (MF) as an example. In this tool chances of gain are variable, however, the trading structure can be represented thus that the payments are also fixed there. So we will examine two types of day trading. In the first case the accidental trading is used, in other words direction and time of entrance are selected accidentally. The second type of trading is the signal trading when direction and time are based on the predetermined signal.

What chances of the victory are in each of these cases? For the roulette and accidental trading the most fixed quantity of outcomes are possible. Chances of gain or loss are variables. The roulette table has 38 divisions, namely, the numbers between 1 and 36, 0 and 00. As a result of the rotation of the roulette it can fall out one of these numbers. The probability of precipitation is 1 to 38 or 2.63%.

Furthermore, the roulette has 3 colours. Two zeros are painted in the green colour, 18 numbers are painted into the red, and 18 numbers are painted into the black. The probability of precipitation of one of them comprises 5.3% for the green colour, 47.4% for the red and 47.4% for the black.

Now we want to talk about chances of the accidental day trading. In the case if our purpose and stop are placed at the same distance from the place of entrance the probability of achieving one of these levels composes 50%.

Maybe this statement is correct in the theory but it is not realizable in practice in connection with the type of entrance and nature of price based on the demand and supply. Furthermore, it is necessary to take commission into consideration.

I would like to focus attention on two words in the determination of the game of chance which is given at the beginning of the article. These two words are the indeterminate outcome. I think that none of the readers will deny the fact that the outcome is not defined at the casino table nor in the transactions on the market. Even if the roulette stopped 20 times in the red sector we know that the probability of that outcome of events composes 47.4% in the 21st time. The roulette does not have a memory.

The term of the game of chance is frequently connected with the necessity of allowing unjustifiable high risk in comparison with the gain. "I will not blow up the MF now, this is the game of chance", so the trader can say. This maxim can be reformulated as follows: "I will not blow up MF now because now the set up is not evident with the high probability".

The trader making for the chance does not have any chances in this game. The nature of market based on demand and supply and commission make the game losing for him. Trading is not a zero-sum game. Trading is a game with the negative sum.

At the end of the commercial day if you summarize all money which winners earned and losers lost you will obtain the negative result. This negative result will be equal to the paid off commission. Furthermore, we must not forget about other capital costs which the players have (computers, the Internet etc).

The trader working on the strategy uses the signal system which probability of success has more than 50/50. This probability can compose only several percentages but sooner or later it leads to the accumulation of capital. This percentage must be sufficient to high to cover commission and commercial expenditures, to ensure a sufficient profit for the accumulation of capital and income for the trader.

A professional day trader and a professional hazardous player make the same thing. They wait that at first chances will change to their benefit and then they stake or make a deal. They invest more money if the probability of winning outcome is more and less money in the opposite case.

I hope I convincingly proved in this article that there is no difference between the game in the casino and day trading on the markets. I did not say, "Between the game of chance and the day trading". This is a question of semantics.

If we define the game of chance as the necessity of assuming larger risk than the expected profit we will agree with the fact it is possible to play the game of chance in the casino and on the market. I hope also that after reading this article you will understand that the only chance to survive and obtain profit is playing the game when chances turn to your own advantage. If there are more chances in your benefit you can stake much more on the indeterminate outcome.


About the author

Eric Marriam is a young writer. Even though he is not experienced he is able to make really high quality work. Eric is able to identify a problem people have and break it down, able to appeal to emotion through emotive writing, can change style of writing to cater to different audience. Eric Marriam is able to work creatively and effectively with staff and managers and despite his young age, he proved to be a clear and effective writer and speaker, committed to maintaining quality and efficiency, seeking for professional growth and development.
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