Gaming the Market: Applying Game Theory to Create Winning Trading
Strategies is the first book to show investors how game theory is
applicable to decisions about buying and selling stocks, bonds,
mutual funds, futures, and options. As a practical trading guide,
Gaming the Market will help investors master this revolutionary
approach, and employ it to their advantage.
Although game theory has been studied since the 1940s, it has
only recently been applied to the world of finance. Game theory
champions garnered the 1994 Nobel Prize in Economics, and, today,
this theory is used to analyze everything from the baseball strike
to FCC auctions. Increasingly, game theory is making its mark as a
potent tool for traders. In Gaming the Market, economist Ronald B.
Shelton provides a model that enables traders to predict
profitability and, as a result, make effective buy and sell
decisions.
Stated simply, game theory is the study of conflict based on a
formal approach to decision making that views decisions as choices
made in a game. Whether playing individually or in a group, each
player in a conflict has more than one course of action available
to him, and the outcome of the "game" depends on the interaction of
the strategies pursued by each. Shelton offers real-world examples
that reveal how the principles of game theory drive financial
markets --and how these same principles can be used to develop
winning investment strategies. Through Shelton's organized and
precise explanations--he uses familiar games such as chess and
checkers to illustrate his points --readers gain a solid
understanding of the key principles of game theory before applying
them to actual financial market situations.
Gaming the Market examines the interaction between price
fluctuations and risk acceptance levels and gradually constructs a
game theory model which proves that there are probability-based
formulas for determining the profitability of any given trade.
With appendixes on T-Bond futures, mathematical representations
of the model, and QuickBasic code for calculating relative
frequencies, Gaming the Market provides a thorough overview of the
rules and strategies of game theory. This indispensable reference
will prove invaluable to novice and seasoned players alike.
Are the markets a game? What are the rules? Who are the
players?
How can you, as a player, come up with a winning strategy?
Now, acclaimed economist Ronald B. Shelton shows you how to
master the power of game theory in the first trader's guide to this
revolutionary approach to investment decisions!
"It's not often that a refreshingly new idea appears in the
field of trading strategies or risk management, but Ronald B.
Shelton has taken pieces from game theory and betting strategies
and transformed them into a new, visual way to make trading
decisions. . . . He has been able to put a value on trading
situations which can increase your ability to manage risk as well
as clarify expectations --both essential ingredients for success."
--from the Foreword by Perry Kaufman author of The New Commodity
Trading Systems and Methods.
"Gaming the Market is a very welcome and most useful new guide
to playing profitably in the biggest and most complex game ever
devised -- speculating in the financial markets. Investors and
traders who study this book will gain valuable insights into the
real nature of the markets and willlearn how to play the game to
win." --Thomas A. Bierovic, President, Synergy Futures.
"Ronald B. Shelton has extended the field of excursion analysis
with an innovative and provocative book that is sure to be widely
read--and controversial. By examining the actual distributions of
price excursion, he shows a technique to estimate your odds going
in on a new position, and within the context of game theory, how to
evaluate those chances. All traders and analysts seeking objective
bases for trading will want to read this book." --John Sweeney,
Technical Editor, Technical Analysis of Stocks and Commodities
magazine.
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