⚡️How To Trade Like A Casino
If you ever wondered how a casino “prints money” consistently, then this post is for you.
#squareoffthreads🧵👇
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If you ever wondered how a casino “prints money” consistently, then this post is for you.
#squareoffthreads🧵👇
1/14
The most powerful thing a casino has at its disposal
Every time it comes up heads, you win $2. And every time it comes up tails, I win $1.
Now in the long run, who will win?
You, of course! Because you have a mathematical edge over me.
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Every time it comes up heads, you win $2. And every time it comes up tails, I win $1.
Now in the long run, who will win?
You, of course! Because you have a mathematical edge over me.
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And it doesn’t matter whether you’re gambling at a casino, betting on horses, or trading the financial markets.
If you want to make money from speculation, you must have an edge over the other players (or the house).
You must have an edge to win in the long run.
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If you want to make money from speculation, you must have an edge over the other players (or the house).
You must have an edge to win in the long run.
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You must know your numbers (it’s so easy that even a 10-year old can compute it)
Here’s an example, let’s say you have a trading system with the following metrics…
Winning rate = 60%
Losing rate = 40%
Average gain = $500
Average loss = $400
Transaction cost = $10
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Here’s an example, let’s say you have a trading system with the following metrics…
Winning rate = 60%
Losing rate = 40%
Average gain = $500
Average loss = $400
Transaction cost = $10
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Your edge can be expressed using this formula…
(Average gain x winning rate) – (Average loss x losing rate) – Transaction cost
So, plug in the numbers into the formula and you get…
(500 * 0.6) – (400 * 0.4) – $10 = $130
You can expect to make an average of $130/trade
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(Average gain x winning rate) – (Average loss x losing rate) – Transaction cost
So, plug in the numbers into the formula and you get…
(500 * 0.6) – (400 * 0.4) – $10 = $130
You can expect to make an average of $130/trade
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Why Buffet can never bankrupt a casino (even if he wants to)
Now, let’s assume that Warren Buffet has turned evil and wants to bankrupt all casinos
He plans to play Blackjack with the casinos and bet $5 billion on each hand. If he wins, he can easily bankrupt all casinos.
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Now, let’s assume that Warren Buffet has turned evil and wants to bankrupt all casinos
He plans to play Blackjack with the casinos and bet $5 billion on each hand. If he wins, he can easily bankrupt all casinos.
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But that will never happen
Why?
Because casino in the world has a table limit. This means there’s a maximum amount to how much a player bet.
That’s their risk management put in place so that a losing streak will not end their business.
And this is the same for trading!
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Why?
Because casino in the world has a table limit. This means there’s a maximum amount to how much a player bet.
That’s their risk management put in place so that a losing streak will not end their business.
And this is the same for trading!
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The secret to generating consistent profits like a casino
The secret is this...
A casino has systems for everything they do.
Risk management to ensure you don’t lose everything on a single trade.
Trading strategy so you have a fixed approach to enter & exit trades.
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The secret is this...
A casino has systems for everything they do.
Risk management to ensure you don’t lose everything on a single trade.
Trading strategy so you have a fixed approach to enter & exit trades.
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How casinos adapt to changing market conditions
Casino's were having less competition in 80s. Then, competition stepped in.
At this point, market conditions have changed.
And if a casino refuses to adapt to changing market conditions, it’ll go out of business.
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Casino's were having less competition in 80s. Then, competition stepped in.
At this point, market conditions have changed.
And if a casino refuses to adapt to changing market conditions, it’ll go out of business.
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And this is the same for trading.
If your trading strategy only makes money in a range market, then what happens when it breaks out and starts trending?
Before you trade any strategy, backtest it to make sure it can survive different market conditions.
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If your trading strategy only makes money in a range market, then what happens when it breaks out and starts trending?
Before you trade any strategy, backtest it to make sure it can survive different market conditions.
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Anticipate the worst.
During a recession, a casino’s will be negatively affected.
They reduce the number of staff to reduce their expense.
Now if a casino can anticipate the worst and have contingency plans ready, they are likely to survive whatever comes.
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During a recession, a casino’s will be negatively affected.
They reduce the number of staff to reduce their expense.
Now if a casino can anticipate the worst and have contingency plans ready, they are likely to survive whatever comes.
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Now what about your trading business,
If your system goes into a drawdown, how do you know if you should continue it or stop altogether?
If the markets suddenly collapse 10%, can you survive?
If you can answer these questions, then you have a sound trading business.
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If your system goes into a drawdown, how do you know if you should continue it or stop altogether?
If the markets suddenly collapse 10%, can you survive?
If you can answer these questions, then you have a sound trading business.
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Conclusion
Just like a casino, you must have an edge in the markets.
Once you have an edge, then your risk management comes into play because you don’t want to blow up your account over a few losing trades.
If you want to grow trading, you must have systems in place
13/14
Just like a casino, you must have an edge in the markets.
Once you have an edge, then your risk management comes into play because you don’t want to blow up your account over a few losing trades.
If you want to grow trading, you must have systems in place
13/14
The markets are always changing so be willing to adapt accordingly (or risk going out of business)
Always be prepared for the worst scenarios (like broker going bankrupt, losing streaks, etc.) so you can make contingency plans to overcome them
Shared by Rayner Teo
14/14
Always be prepared for the worst scenarios (like broker going bankrupt, losing streaks, etc.) so you can make contingency plans to overcome them
Shared by Rayner Teo
14/14
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