Trading stocks in a Casino?

Day trading (or extremely short term trading) is less of trading and more of casino poker - the grand bluff game!

Various versions of poker are there but the general rule is to bet on the basis of cards you get. A player may get good cards or bad cards in the deal. He may continue to play or fold depending upon his mood, the cards he has got, the expressions and body language of his opponents or as part of a strategy.

If it were as simple as folding when you have bad cards and staying put if you have good cards, poker would be a dumb boring game. Fortunately, it is not! In reality, a good player with bad cards can play the bluff game well and win while a bad player with good cards can spoil the pot with his tactless expose' and win peanuts or even lose!

Everyone on the table is bluffing. So much so that for the onlookers, nobody seems to be bluffing. Bluff seems to be the reality! Sometimes even the tactless straight play is also a bluff!

Such poker play can be seen everywhere in the stock market everyday!

A stock which "should" go up generally goes down and stock which "should" go down generally goes up. Obvious thing never happens till it is not so obvious. The point is to bluff in a way that the big pockets trap the maximum possible numbers of small pockets. Had this been not so, there would be almost no money in short-term trading!

But ultimately even the big pockets know that they would be fools to drive a stock too much away from the fair value. Even the fair value is highly subjective and subject to perception manipulation, thus giving enough space for the poker play!

Day-traders or short-term traders who think they are trading are sadly mistaken. In effect, they are playing poker with trading rules and hence highly disadvantaged against those who are trading with poker rules.

So it is not important how well you can judge the oversold or overbought position of a stock or the market. What's really important is how well you can judge the poker bluff being played on the stock or the market.

If you are nimble professional you can go with the bluff otherwise you should wait till the bluff has gone too far and then bet for the collapse of the bluff.

However, if you are a medium to long term player no need to worry about the bluff. Bluff missiles don't have that much range. Contrary to the popular belief, it is easier to predict the market in the long term than in the very near future.