The unpredictable nature of the stock market is sometimes likened to a game of chance, and there are many similarities between Wall Street and Las Vegas. In both instances, participants put capital to work in a risky environment. The most successful gamblers employ techniques that require real skills, both statistical and psychological, which is why some are able to consistently win at games such as poker. 

One of the most common and costly psychological mistakes in both gambling and investing is getting stuck in an opinion. One trader I know has been aggressively betting against the recent surge in the S&P 500. From his analysis of geopolitical events, he didn’t believe the market could or should continue to rally. In his opinion, the market was “wrong” and, therefore, he would eventually be proven right, so there was no need to close or reverse the position. 

DEATH BY OPINION

My friend was stuck in an opinion. Rigid thinking, which may arise from a correctable imbalance in brain function, is dangerous for investors because in the market casino virtually anything is possible.  It’s important that active traders stay vigilant about the risks of self-sabotage because of tightly held opinions.

If you suffer from rigid thinking, it might help to embrace the casino paradigm a bit more and realize that “the House” always has the statistical advantage. Moreover, there is an additional option.

THE ACTIVE TRADER’S ADVANTAGE

In Las Vegas, you could be banned if you employ methods that give you a statistical advantage. Wall Street, however, is like a casino in heaven because it permits us to analyze all the activity in real time. We can bring our laptop to the table and scrutinize virtually every “card” played by every player in the room.  

We can analyze trends, backtest, and apply forecasting algorithms without fear of being banned. We can discuss strategies with casino denizens and act on our market intelligence instantaneously, for a modest fee.

The Bottom Line

To take full advantage of the Wall Street casino, adopt an objective mathematical approach, which is why banks and brokerage firms hire hundreds of math Ph.D.s every year.  Of course, we can’t totally eliminate our opinions, but do your best to invest in the market, not your opinions.