The Russian Roulette

Anyone who has been in the profession of stock market trading for a while must have noted the high mortality rate in the business. Many wipe out in the first few years. More important than that, there are countless others who make huge money for (say) three years and then loose most of it in the next two months (click here). There are even those who get blown out after ten years in business that includes fund managers as well.

Visualize a middle-class teenager and a bored businessman. The businessman places one cartridge among the several chambers of a revolver and rotates its cylinder so that the location of the cartridge is unknown. The teenager is asked to shoot himself at his head. The cruelty of the game: if he survives he gets ten million dollar cash. This game is called the Russian roulette.

Here the probability of winning is specific. Now what if the revolver has a thousand chambers and the prize money is ten thousand dollars? The participant will have a false sense of security after few consecutive wins. There was a breed of Moving Average based traders in the 70s. There was a breed of breakouts based traders in the mid 80s. There were many day traders who made consistent money using only order book until NYSE became hybrid. There are currently many algo traders who make consistently with their trend exhaustion based strategies.

That is exactly the reason why it pays to differ between Strategies and Tactics.