Stock market is a casino

Join the NASDAQ Community today and get free, instant access to portfolios, stock ratings, real-time alerts, and more! You've heard it before, and you've seen it in print; "The market is just a casino.

When someone calls the market a "casino," they usually mean it's a disreputable institution, needing more and more regulation at best, or perhaps worthy of extinction at worst. And there's also an implied suggestion that there's no way to trade the market rationally-that logic and strategy are useless.

Like when your brother-in-law just lost a bundle in a failed IPO. It's a highly rational enterprise constructed to consistently extract money from customers and put it in the hands of the casino operator. And why is the casino such a sure thing for the casino operator? It's because the games are set up so the odds favor the house.

The games are rigged! Not rigged in the sense of being crooked, but rigged in the sense of having the math grinding away in the house's favor. If the games are set up right, the math just keeps grinding away. One course included a section on "Permutations, Combinations and Probability.

And maybe a few underclassmen. For this game, I brought to school a sock and six marbles; three black, two red and one white. The game was to draw three marbles and get all three black. I'd offer the other kids to pay me 25c to play.

If their three draws were all black, I'd pay a dollar. There's something about the three black out of six total that makes the game seem like the odds are maybe about Or maybe 2 to 1.

But in fact the odds are to-1 against drawing three out of three blacks. The calculation is summarized below. It was like having my own lunchroom casino!

I was finally busted by the school administration. I don't think they really minded that much-perhaps they even admired the enterprise-but the operation was thought unseemly, or maybe poor public relations, should it become known outside. So what about the stock market?

In the market there are no 4-to1 payoffs, and certainly no to-1 odds in your favor. But every investment and every strategy has some chance of winning and some chance of losing.

And we can't know in advance which is which. If we could know which is which, we'd only have winning trades. What we can do is use analysis and strategy to have more wins than losses, or have bigger wins than losses, or both.

We can't create to-1 investment enforex school alicante like my sock game, of course. We rally forex significato do just fine with 1.

Going All-In: Comparing Investing And Gambling

What's unlike an actual casino is that we never know in advance exactly what are the probabilities of a particular strategy or opportunity. There aren't any "combinations and permutations" tables to look up that answer.

Instead, we rely on history. We define a process, test it historically, and compile statistics on the output to measure just how profitable it has been. More important, we measure how variable the output has been.

And of course, we count how often the investment criteria are met. The analysis is complicated, but it's essentially based on rate-of-change differences. In the nearly 13 years sinceexchange rate aed to pounds calculator model has generated 87 Buys and 87 Sells.

One signal every 18 days on average. And if we can generate 1. But that's not enough. When we look at variability, we find the averages can be misleading. The Sell signal outcomes, it making money poker casino out, are almost 2x as variable as the Buys.

And the successful Sells are dominated by a few very steep and very rare bear market events, while the Buy outcomes are really very consistent over time. So the Sell signals feel more like gambling, but the Buys can contribute to a really attractive "casino" pre 9-11 stock options lots of bets at many tables, with the math just grinding out the gains.

Stock market is a casino analysis doesn't settle everything, of course. Markets are inherently dynamic, and market behavior is subject to change. So we need to keep tracking and testing. Occasionally, a market change will call for a strategy change. But until withholding tax on stock options point, it's important to maintain strategic discipline. If your "casino" is set up with care, the probabilities will prevail.

The "chips" may move from one side of the table to the other as each hand is dealt, but the inexorable drift will work your way. Your guide to ETF investing, Robin L. The views and stock market is a casino expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. Enter up to 25 symbols separated by commas or spaces in the text box below. These symbols will be available during your session for use on applicable pages.

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