When Bill Moore, a games enthusiast, is introduced to the world of trading, he quickly realizes that trading is just one big game as well.
In this episode we answer the questions:
1. What is an edge, and how do you determine it?
2. What is probability, and how do you define it in the markets?
3. What are Black Swan events, and how do traders manage them?
[00:03:07] – Being a trader with an edge.
[00:05:45] – Probability in the markets.
[00:11:14] – How to handle black swan events.
[00:13:06] – How do we know if traders are problem gamblers?
[00:19:27] – The anti-martingale method.
[00:23:20] – Top cognitive biases.
[00:25:39] – Gamblers ruin.
[00:35:04] – Advice for doubters.
Quotable Quote from Bill Moore
“It’s important to have an edge if you want to be successful. An edge is something that gives you a positive expectation in the market. It’s essential to understand probability when trading. Probability is the range of things that can happen when you place a trade.”
“Just because you have a winning strategy doesn’t mean you’re going to win every trade. There will always be some element of risk involved. I’ve learned that it’s important to have a plan in place to manage that risk. If you don’t have a plan, you could find yourself in a position where you can’t trade anymore.”
– Bill Moore
Some of the Questions Bill Answers:
- “Trade with an edge, or do not trade”. What do you mean by an ‘edge’, how do you determine it, and why is it so important?
- How is probability used in trading? How do you trade with high probability? Do you look at win/loss rates?
- How do you deal with long tail events, which are sometimes known as black swan events? These types of events are unpredictable, and have very severe consequences but occur very infrequently?
- Some people say there are three buckets of gamblers –the professional gambler, the social gambler, and the problem gambler. I’ve even heard some traders say “I’m due for a win” – and I always shudder when I hear this. How do you know when you’ve got a gambling problem? Or, if you’re starting to have a problem where you’re over-trading?
- ‘Traders absolutely hate risk and uncertainty, while gamblers live for it.’ What do you make of this? Is that an accurate statement?
- Trading has borrowed some terms from the gambling arena. For example, an anti-martingale approach is used by members of both fields. Anti-martingale is where you add to your bet size when you’re winning, and you minimise your bet size when you’re losing. What are your thoughts about this strategy?
- Traders and gamblers experience clusters of wins and losses. Sometimes everything you do turns to gold, and other times, you can’t buy a winning trade. What do you do when you’re in a cluster?
- There are a lot of cognitive biases in trading. What would be your top types of biases and maybe give us some clues for how to overcome them?
- What do you say when someone says “Well that’s just gambling” when they hear you’re a trader?
About Bill Moore
Bill Moore is a self-proclaimed nerd, a quant, a trader, a developer and an entrepreneur. He’s the founder of https://fasttrading.academy/ and he maintains that a data-driven, edge-focused trading system is the best path to trading riches.
He’s also a keen player of games of chance, a student of gambling and poker, and he loves playing chess and backgammon. He deliciously combines these skills as a gamer with his love for quantitative finance.
Bill tells me that he’s “On a mission to provide edge to the individual trader.” What a wonderfully succinct mission statement.
Get in Touch with Bill
About Louise Bedford
Louise Bedford is a highly accomplished and experienced trader, educator, and author, with over 30 years of experience in the financial markets. She is the co-founder of The Trading Game, and is known for her unique approach to teaching trading psychology and market analysis.
Louise has authored several successful trading books, including Trading Secrets, Charting Secrets, and The Secret of Candlestick Charting. She is also a regular contributor to Ausbiz, the Your Trading Edge magazine, and is the host of the Master Your Trading Mind Hub at IG Markets Australia.
To get in touch with Louise