I Can't Do It When You're Watching Me!

A curious post "Luck and Skill in Trading..." from Peter Webb on his vendor blog who says, "Of course, you can’t guarantee that you get it right and also talking and trading is pretty hard. When trading you need no distractions to be able to trade effectively. A room full of people is a major distraction!" 

I wonder how traders in financial markets manage to trade sitting next to each other in huge trading rooms with all the noise, hustle and bustle, let alone the former open outcry traders pushing and shoving in their trading pits? Come bonus time and a trader doesn't get any extra for his year's work can he say to his manager, "I would have made more but everyone was looking at me!"

[EDIT: Two can play at this game. Financial traders have noisy squawk boxes, television screens and other traders shouting orders into phones whilst they themselves trade. 14 winning trades in a row is nothing if you have been trading for a long time. I have tossed a coin and gotten 14 heads in a row but that doesn't make me a genius tosser. Just a tosser!]

Jospeh Buchdahl discusses luck and skill in his excellent book Squares & Sharps, Suckers & Sharks and, as usual, he backs his statements up with facts and figures rather than anecdotes. What Joseph more than amply demonstrates is that at the top of the game, be it in sport or gambling on sport, is that as the skill gap closes the luck factor increases. 

Soccer has always been a little backward in going forward, which you can read about in Soccernomics. Sport science and big data has only recently entered the realm of that sport. Putting aside Leicester's outlier in the 2015/16 season (Leicester has since mean reverted) the vast sums of television money that now buys players and support staff means a bunching up at the top of the Premier League by those teams owned by the super-rich. There could well be a lucky moment or two this season that decides who takes the league title.

In trading too, with all the available data and the technological improvements to process that data it gets harder every year to find an edge. The future will probably see markets predominantly filled with algo-traders and high-frequency operations, less of the old-school manual traders "scalping" a tick or two. As with pit traders in finance, the manual trader in sports will become marginalised. Reactions to late-breaking information will be more rapid than today and as in the Premier League it will be the wealthy operations with the latest technology that truly profit.

Another snippet from Mr Webb's post mentions, "If you assume that my ability to get a winning trade is just that of a coin toss, a 50-50 chance, then what is the chance of me getting all 14 traits (trades) correct?" I can't help but think that the little imp has been reading my website again and suffering from a little cognitive bias in jumping to a conclusion that isn't there.

I did say in my article Scalping and The Winning Combination that in a directionless market a (noise) trader has only a 50% chance of success. If a market has direction then the chance of trading market movements is no longer 50/50 but then I did say, "If they had asked, 'In an upwardly trending market.' then I might have said something different."