What is the difference between the casino of the stock market? Some of them do not see a principled distinction. However, most likely, is to agree with the author, who comes to a definite conclusion: the casino a lot easier.
The case of the tape
Arguments about whether the stock market a concentrated expression of the state of the economy, or so the casino does not expire for many years. In doing so, the word «casino» fully understand randomness and senselessness of trading the results of investments in equities. Opponents argue that the market - this is not a casino, but it is a place on earth where everyone, making intelligence and diligence, might become rich. And both sides have used the word «casino» with some disdain.
Before I join the general chorus, try to understand the mechanisms of the functioning of markets and casinos. Perhaps a detailed consideration of the internal mechanisms will help to change the view as a casino, and the stock market.
At first, elaborate on the casino. For example, explain the case of the tape. The customer simply puts on the fourth or Odd, Red or Black, as well as to any particular number. He makes a bet. In any case, even before the moment when the ball stops, he knows exactly the amount of money to lose.
If, having received a negative result, the client wishes to again casino game to continue, then when he did not lose more bets. The amount of the maximum gain is also known in advance, as is known and the probability of outcomes for each bid.
I now turn to the work of the trader. In most books for beginners necessarily indicates that the gains on the stock exchange can be arbitrarily large, as well as losers. Each trader has a trading system that gives a signal, open and close positions. In each case, the amount of profit and loss are different. Trader determines potential earnings and the maximum loss that is willing to take when adverse outcome.
Principle rates
Imagine the simplest trading system, which is based on the daily charts. Suppose that a trader opens a position at the beginning of the exchange of the day and closes at the end. Intraday variations of many shares to several percent, so the potential profit is significant. During the growth of the market days, closed with an increase greater than the number of days in which prices fell. By contrast, the bear trend in the number of «negative» days exceeds the number of «positive». Very simple and seemingly profitable system, but do not always meet a person who wants to use it. The reason is that the prices on different days are different distances. And one day, against the trend can absorb the accumulated profits of previous days. That's worth remembering the casino. If the growth or decline of each day, always have the same meaning, such a system would be workable. The system could be profitable if the principle of bids - losses and profits are known in advance. Indeed, the difference between favorable and unfavorable days, multiplied by the amount of bids, determines the amount of profit of such a system. The principle of the stakes - the first advantage of the casino before the stock market.
Two more advantages
The prices of most financial instruments are moving constantly, almost every 24 hours. There is no beginning and the end of this movement. Trader determines for itself the beginning and end of the transaction. Investigate more, which leads to such freedom of choice.
Anyone who has ever made their own deals, knows how psychologically easy to open a position, and how difficult it is to close it. If a trader observes the current earnings, then, following numerous tips as long as possible «to stand in profit», he looked forward to further growth. If the price suddenly dropped - looked forward to the resumption of growth, if continued to fall - to turn the market. Typically, such tactics lead to significant losses. But the early exit from the position - not a panacea: a loss could accumulate a large number of negative transaction. And anyone who takes a small profit, will not be able to cover losses. In any case, the trader is seeking to identify any time-frame for the infinite movement of prices. Let the player's actions in the casino. The moment the game is clearly defined, the end too. Once the roulette ball has shown winning number, - «business» has finished. If a player has received the loss, the next spin the roulette wheel will not be able to influence its outcome. To continue playing, you need to make a new bid. In the casino not to make a bet to accumulate the gain or loss.
The second advantage of the casino - a clear time boundaries «transaction»: the time of its beginning and end of well-regulated, and the player is not able to change anything. This protects them from the possibility of a long stay in the open position, which is not uncommon for the market. On the behavior of prices affects a huge flow of information, which is literally dump on the head trader. An attempt to digest all the information leads to a large time-consuming, but does not always provide the correct analysis. In casino news is not used for the analysis of the probability of the outcome of the next bet. The third advantage of the casino - the lack of hard analytical work.
And someone saw the man at the casino, making a technical analysis of «historical data»? It is believed that the outcome of each bet in a casino is purely random in nature. If anyone is trying to build a winning system, based only on the management of capital.
On the stock markets, especially novice traders, the emphasis is on technical analysis. The dispute about the nature of stock price movement has not yet been resolved. Let's try to analyze the internal structure of their motion.
Brownian motion
Suppose the market prices of products in the form of two-dimensional process. One component will be an absolute change in one day, the other - a sign of this change, which can be positive or negative depending on whether prices rose or fell on that day. Now the price of closing of each day can be represented as coordinates. X-axis postpone the whole positive and negative numbers, and the axis Y - absolute value of price. As an example, use historical data of the internationally famous company «Intel» (INTC). Figure 1 provides a timetable for the movement of prices of the company's shares in the new coordinates. Investigate in detail how we construct the schedule in the axis X. Data are presented from 2 January 1998, the total duration of the series - 700 days. On the first day, the price closed at around $ 17.96. The coordinates of the initial point set as (0, 17.96). The next day the price has risen slightly - the coordinates of the next point (1, 18.43), another fell in a day - the coordinates (0, 18.03).
To get the coordinates on an axis X, you need to coordinate the day, add 1 (day closed «in plus»), or -1 (in the day prices fell). Thus reflected a series of independent increments. If the scale of X is positive, then the number of days, closing price exceeds the number of days of fall. If the values are negative, then, was a period when prices are falling than rising.At the beginning of the schedule visible area, where prices consolidated in a range from 15 to 25. Temporary component of the graph is missing, so it's hard to say how long the prices were in that range. Surely it could be argued that the number of days of growth exceeded the number of days of fall, and sometimes the difference is 11. Visual movement in this area reminds chaotic Brownian motion. Then the price level of 25 and overflows into the range of 25-35. In doing so, the total number of «positive» days also increases, which confirms the existence of a rising trend. Such breakdown of repeated several times until the price reached a maximum value close to the mark 75 does not begin to rapidly decline. The schedule shows that the movement of prices is mainly of a random nature. Prices may be a long time lie within certain boundaries, making a totally chaotic motion. The trend can be thought of as a transition from one region to another, higher for a rising trend. Falling prices for other laws - suddenly, dramatically and can not leave areas of consolidation.
Areas of consolidation
Practical application of these schedules is limited. They can not fully use all the variety of technical indicators. The schedule can be used to understand the internal structure of the movement of prices. Again, pay attention to the area of consolidation. The first zone (on the X-axis range 0-11) more stretched horizontally, the next zone (7-15), inclined at an angle of approximately 45 degrees. Prices in the next zone moving essentially vertically. What is the meaning of these observations? In the first case, the growth of accumulating a lot of positive days. Increase the price is low, but prices are falling significantly. Although the negative days less, they do not increase prices. This is the case when a negative day overlaps somewhat positive.
In the second zone of absolute values of growth and decline of approximately equal, the prices are increasing due to the excess number of days of growth over the days of falling. Ascending trend continues. The third zone shows that the main increase is due to the fact that in the days of growth in the prices rise considerably, as in the days of falling rolls is small. These considerations confirm that the internal structure of the movement of prices on the stock exchange two-dimensional in contrast to a series of bets in the casino, and therefore more unpredictable. If a similar schedule to present a series of bets in the casino, it would be a straight line with a slope of 45 degrees to the rate of $ 1, the maximum gain in this series would have been $ 34. And the stock price reached $ 75, and eventually fell in the area of $ 40, while making unpredictable movements. An even larger casino So, accept that the market - even more «casino», as the casino. However, the question arises: why are earning money on the stock exchange? The main reason is that theoretically the institution is not difficult to beat, almost as impossible.
Indeed, to outflank the casino, you need to bet more than the institution. This is achieved quite simply - to be after losing a bet geminate. Such tactics can afford «money bag», but the size of bets in the casino is limited to mathematics, there are also known. Casino thus reliably protected.
But the market can make any bid would have been only liquidity. Every trader is trying to exchange reviews. In addition, the casinos, each subsequent bid probabilistic independent of the previous one. At the stock exchange often lengthy series of rising or falling. This is due to the dependence of future results of the exchange of the day from the closing price of the preceding. There are trends that can last for several years and even decades. The timely opening of «correct» the position has a significant profit. To compare the stock exchange and the casino can be very long, and many Criteria. The essence of discourse is that when developing their own trading system, a trader needs to make it the best that they can give the principles of the casino. This should retain all the positive aspects of exchange trade. And the comments that the stock market - this is a casino, you can answer: the casino easier.
Vladimir Kelasev
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