Statistics: why the stock market is the easiest market to trade


Trading is gambling. But it isn’t stupid, blind gambling. It’s calculated gambling, which means that those who succeed do so with probability on their side.
The stock market is the easiest market to trade simply because unlike other markets, the stock market has a 1 directional bias (i.e. goes up more often than it goes down).
This means that trading forex and commodities is harder than trading the stock market. Here’s the data to prove it.

Stock market

The stock market tends to go up more often than it goes down, especially the further forward you go in the future.

Commodities

The probability of commodities going up vs down is pretty much 50-50.


Currencies

The probability of the USD going up vs down is pretty much 50-50. This applies to EURUSD, USDJPY, USDCAD, GBPUSD, AUDUSD, etc.

Conclusion

Trading and investing is hard enough already. Why would you want to trade a market where the random probability is 50-50 like forex or commodities?
Let’s put it this way. If you knew nothing at all and just traded on the long side in the stock market, you would come out ahead in the long term. Or as Warren Buffett says, “even a monkey throwing darts at a list of stocks can make money”. The same cannot be said about a monkey throwing darts at a list of currencies or commodities.
If you trade stocks and learned about fundamentals+technicals, you would do even better (see trading models).

6 comments add yours

  1. Succinctly stated, very valid, Troy! That’s why I only invest in the stock market. I am scared shitless of the currency and commodity markets (though I started with commodities early in my investing journey – and learned lessons quickly).

    • Why make money the harder way when you can make it the easier way 🙂

  2. Please specify the methodology used. Readers should be able to reproduce these results.
    What is the input data? e.g. for commodities there are various baskets that have different weights for energy.
    How many samples are taken?
    Sampling with or without replacement?

    • Hi Ken,
      This data is from stockcharts.com
      Calculating it is simple. On any given day, what is the probability the market will be higher X days later?
      Calculate the # of instances that are higher. Calculate the # of instances that are lower.

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