Casino Trading Method
You know what this blog is going to be about. Let’s get right into it.
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The Background
There is a lot of talk about trading being the same as gambling because it’s all based on luck. Whether or not you think it’s true (to read up on this topic you can take a look at a blog we wrote on the subject), for the purpose of this piece let’s believe this statement.
Where do we go from here?
In gambling, the casino always wins. So if it is really a gamble, your best bet is to trade like the casino. You want to be on the winning side of course.
How does one trade like a casino?
Let’s look at the casino’s strategy first.
If we look at the game of roulette, the casino’s chance of winning are 20 out of 38, and the player’s are 18 out of 38.
20/38 is 52.7 and 18/38 is 47.3.
This difference is because there are two green sections on the wheel which also mean a win for the casino.
So the casino has a 5.4% more chance of winning. They win because of statistics and probability.
Replicating that model
People lose more when they are wrong and they make less when they are right.
Profits are taken from fear of losing more. Losses are not cut because traders find it hard to accept that loss and so false hope keeps them hanging on to the notion that the prices will eventually come up. In the end, more often than not, this results in them losing even more.
Look at historical data.
This is the key!
This is why technical analysis is so widely used. We have talked about retracement levels, support and resistance, and Fibonacci etc. here before so the details will not be repeated here.
Just to summarize them briefly though, these are all repeating levels in forex. Support is a lower limit that is hit before price bounces up again and resistance is the upper limit which will be hit before price falls back down.
Repetition is the trader’s only friend in the market.
Although there is no guarantee of these happenings, the probability of a price bouncing back up from a support level is definitely higher than 50%. So it’s better than the regular odds.
Why does repetition take place?
The simple answer to that is: because of traders.
If you as a trader believe that the current price actions in the market will follow historical patterns, it is very likely that the other traders are thinking the same.
At the end of the day, in forex it is the traders who decide how the price will move. And their decisions are based on beliefs. In a way, it is a cycle- a little like Tinker Bell. If you believe she is real, she is real.
Support and Resistance and retracements levels are all outcomes of psychological patterns.
When patterns repeat, it means there is now more than a 50% chance of the trader winning, granted they were betting on that repetition. The trader is now at the casino’s position.
Of course there is still the possibility that Support or Resistance will be broken, and that is accounted for in the remaining 40% or so. The point is, that you have a better chance now.
In conclusion
In forex, or gambling, there can be no guarantees. Probability, however, is always a part of every occurrence on the face of this planet. Therefore, your only chance at winning consistently is by understanding and calculating those probabilities.
In forex there is a whole system of analysis, the technical analysis, and services like signals that help you evaluate this chance or probability. Take your time understanding it and make the most out of forex.
We do realize this might have come across a little disappointing as this too is not a shortcut. It requires learning and investment of time, but that is how you know it is the real deal.
If you’re trading in forex with the same kind of hope the gambler has, of making thousands overnight, the result for you will be the same type of losses gamblers face. There has to be a scientific method behind trading.
We hope this still was able to show you why so much value is placed on past data in forex.
Last updated on April 18th, 2020
There is a simple concept to successful trading that typically gets overlooked and discarded as soon as the everyday average ‘would-be winning’ trader encounters a few losing trades. They might have a very effective and profitable strategy but after a few losing trades, that strategy gets tossed out the window and the search for the next best strategy begins.
This is called ‘chasing performance’ and is a trap that normally leads to more losses. The way it works is that the would-be winning trader waits until the market is ‘trading well,’ winning trades have just occurred in other words, and then decides to start trading.
The moment he does, his trades lose and the feelings of betrayal and conspiracy come rushing in.
As the losses continue to mount, there comes a time when our would-be winning trader takes more pain than he can handle and quits. Of course the next series of trades are all winners which hurts even more.
Casino Trading System
Sound familiar?
If you’re reading this, chances are you are nodding your head in agreement and can identify with this unpleasant and all too common scenario. You are not along and most of us have been there and done that many times.
Successful Traders Live And Die By Their Rules
Another typical behavior that a would-be winning trader will do is to ‘fix’ the losing trades by tweaking or changing the rules so that the losses would have been winners. This is very common and usually proves to be a bad idea as well and is not something successful traders would ever do.
Any rule that a trader comes up with is bound to have incidents where it just isn’t going to work. Perfection in trading, that is, figuring out how to get nothing but winning trades just doesn’t exist. Do you think governments are going to allow our would-be winning trader to just mint money whenever he pleases without there being any risk involved? More likely we’ll be paying you a visit while you’re breaking rocks in Leavenworth!
It is illegal to mint your own money.
Trading has inherent risk which means there will be losses to go along with any winners you could ever hope to enjoy as a trader. By the way this type of thing, fixing losing trades after the fact with changes to your rules is called ‘curve fitting’ and that never ends well either because market conditions are constantly changing. As soon as you change the rule, you will lose again while the original rule would have won.
Does that sound familiar too?
The typical healthy growing equity curve will go two steps forward, one step back, two steps forward, one step back. Losses occur as part of a winning trade plan. The performance chaser above waits until he has just seen the two steps forward occur and begins to trade at the exact wrong time. Then, at the end of the one step back, right about the moment he has taken on far more pain than he can handle, he quits.
He is constantly on the wrong side of the curve.
The only result will be continued losses, frustration and potential financial ruin. Sadly, this is completely avoidable and yet it still happens more often than imaginable. It is far too common and doesn’t need to be like that.
Successful Traders Understand The Success Behind Casinos
To discover the simple concept that all too often gets cast aside and that would set our would-be winning trader on the road to becoming an actual winning trade can be found by modeling what the casinos do. The casino creates a statistical advantage and then they just go about doing their business, giving the power of the ‘odds’ the time it needs to work in their favor.
Think about it.
The secret to success is so simple that it defies logic how easily it is ignored, overlooked, cast aside, underutilized or flat out forgotten when a few losing trades occur. It is one of the many strategies successful traders use to remind themselves how profits are made in trading.
What good is having the best strategy in the world, one that would make you money from now until forever, if you never learn how to get to the money and instead toss it aside as soon as some losing trades happen?
The best strategies will still lose money and do serious damage in the hands of the ill-equipped trader. Usually it will be because of the hard to control ‘need’ to either curve fit or chase performance in the quest for eliminating losing trades.
What does that have to do with making money and being like other successful traders though?
Nothing at all and in fact it ironically just propagates the cycle of continued losses.
You have to become a great trader to make money even with a great strategy because as I said above, nothing is perfect in trading.
Casino Trading Method Definition
But what does that mean?
You Will Never Be 100% Perfect In Trading
Does it mean being able to execute trades perfectly? That’s part of it but remember, some trades are going to lose. Losing trades DO exist within a winning trade plan and trade strategy. Great traders understand this and have learned to surrender to this idea, accept it, and then begin to focus on what it really takes to become a winning trader.
They focus on being the casino and letting the house odds work in their favor, over time.
In the end, like any business, trading is a numbers game. If you can learn how to stack the odds in your favor and survive long enough so that the odds swing back around to do the heavy lifting and grow equity, you can be like the casino and succeed.
The secret to successful trading is not a secret at all. It’s just good ‘ole common sense.
Establish a statistical advantage, an EDGE in the market, and then go about your business taking the trades that over time, will allow that advantage to grow your equity.
Wins and losses will come at a random distribution, that’s just the reality of trading, no matter how good you and your strategy are.
Losing traders focus on avoiding losing trades. That never works. Follow successful traders by understanding and accepting this, establish a statistical advantage (edge) in the market and then go about your trading business by focusing on smart risk and money management.
This will give you the ability to stay in the game through the random losses, so that you can take the next trade per your trade plan enough times to let the odds work in your favor and grow your equity.
Then it’s just a matter of letting the ‘power of compounding’ do its thing. It’s just a numbers game.
Since many traders like to use indicators (usually the wrong way) for their trading method, Netpicks has put together a free and vital “Indicator Blueprint” to put you on the right track when using an indicator for your trading decision. Get access to the PDF and videos by clicking here.