Many people are concentrated on the question “where the price is going — up or down?”. And you may think that the edge in the trading game is about the correct answer on this question. But I want to give you a different look at this.
Let’s take a roulette.
Is it possible to have an edge in the roulette game? If you’re playing against the casino, obviously not, you have a fixed math expectation which is against you.
But what if this is the kind of roulette where winners share money of losers? This fact changes the situation more than you might think.
Now you may have an edge consistently betting against the majority. Because if the majority fails, the minority of winners take excess profits on their risks. This creates the edge in the game. You still can’t guess the right outcome because it’s random, but when you’re right — you make more money than you lose when you’re wrong.
Most people in this kind of game anyway will concentrate on the “red or black” question. This will create the necessary disbalance of bets in the game. And this gives you an opportunity to play the game against this bet disbalance.
The trading game is an example of this kind of roulette. Winners take money of losers, minus transaction costs. Most people are concentrated on guessing where the price is going.
So maybe it’s a good idea to stop being overly concentrated on the “up or down” question (it may be random, after all), and start being concentrated on people making bets. If you find a way to be there when the big chunk of bets fails, you will have your edge.
