Gamblers and Traders

Gamblers and Traders

Before our questions become more complex and in-depth, I need to clarify a few concepts that differ from everyday usage — such as gambler, and such as betting trader.

First, let us break gambling down into distinct categories:

Among these, only the financial-disguise category is built on fraud and deliberate information asymmetry. Every other form of gambling is, in theory, a mathematical game with underlying randomness. There is no fraud involved. If we were to discuss fraud in gambling, that would require a much longer story — and a far colder wind.

The Random Nature Shared by Gambling and Trading

Truly professional traders — whether in stocks, funds, forex, futures, or elsewhere — all share the same innate characteristic as gambling: randomness. Our predictions either fall within the random process and win, or they fall outside it and lose. In different games, the random boundary takes different shapes — spatial volumes, or even expressions in higher dimensions. Yet when we place a bet or make an "investment," we can only do two things: buy and sell.

Imagine a flat cylinder struggling in space to form a closed cylinder — or a cylinder in an even higher dimension — and then struggling within that multi-dimensional space to chase certain points. Capture those points, and you profit. Miss them, and you lose. Capture more than you miss, and you win. Miss more than you capture, and you lose. Within this complex space, the spatial volume itself almost never changes — unless some advanced arbitrage is involved. But your cylinder keeps shrinking because of past losses, and the smaller it gets, the fewer points it can reach.

I think I have made this clear enough. It is like a three-dimensional — or even higher-dimensional — Snake game. And it is harder than Snake, because in the Snake game you can at least cut your losses when the game ends. But in financial trading, things are far more "Livermore" than that...

What Separates a Gambler from a Trader

Gambling, as described above, has its own characteristics, and there are people tirelessly studying its patterns. They generally believe in statistical regularity — that what has happened before will happen again. I do not know whether this is truly an illusion that statistics can give people, but I think this is where the distinction between gambler and trader begins to emerge.

A gambler thinks:

• "This time the opportunity was not good."
• "The bookmaker set unfair rules."
• "The bookmaker knows everything."

A trader can only think:

• "What went wrong with my factor?"
• "Where did my strategy fail?"
• "Did I introduce a forward-looking bias?"
• "Is there overfitting in my strategy?"

The Only Truth

From here, I must bring up what I believe is the single truth in all financial trading:

"Only respond. Do not predict."

Any gambling game and any financial investment, when stripped down to its essence, is the same thing: betting on big or small. Right, you make money. Wrong, you lose money. It is that simple. Only the underlying asset differs. (My memory is not great — some of these points and sentences may have appeared in earlier articles.)

Football Betting and Perpetual Financial Products

When you understand financial investment and gambling in this way, you will see that football betting and all perpetual financial products are connected. In fact, some characteristics of football betting are even better than certain financial strategies.