Stock Market: Trade Like A Casino

Trade Like A Casino!!

You would have heard the saying, "House Always Wins!" Do they have a statistical edge over retail traders? Well, lets find out.

Players In The Casino

Players in the casino always lose money. They may have a winning streak in short term in gambling sometimes when they are fortunate. But luck does not last forever or can’t be on your side always and eventually runs out. Hence players always lose everything in the casino. 

However its not the case with the casino(owner) which always makes money in the end or in the long run. The casino always offers free drinks and entertainment because it wants players to play more and more they play, more the casino wins. How they make sure that they always end up making more money in the game?

Casino rigged the game in such a way that they always have a statistical edge over the players. Lets understand it with the typical game of a roulette wheel.

When you bet on roulette wheel numbers; black/red numbers or odd/even numbers, player thinks that the casino and he got 50:50 chances of winning which is not true. Because the wheel got 18 black numbers, 18 red numbers and in addition, it also got 2 green numbers(0 & 00). Here is the secret.

For example, if you bet on a black number, what are your chances of winning the bet? The chance is 18 out of 38 instead of 36(47.3%). Because there are 18 black, 18 red and 2 green numbers as well. On the other hand, the casino’s chance of winning is 20 out of 38 times(52.7%) i.e even if the ball lands on green, the casino still wins.

This means the casino has a 5.4% statistical edge over the players. Hence every $1Million bets casino will make $54000 more than players. This is how casino always makes money in the end over long run. 

99% of traders lose money in the stock market!

Well, this applies on the traders not following stop losses(not booking a loss), have no control over emotions and fear of losing out. Because most of the traders will always enter market without proper learning and money management.

How You As A Trader Can Have A Statistical Edge Over The Market?

In Uptrending Scenario:

Investing.com

1. Study the repeatable price action chart patterns in the stock market.
2. Just set few % profits that you want to achieve from the market on monthly basis like 20% of your capital. It makes it easier to achieve it when you further break it down to a weekly level.
3. Buy on dips at the support level. Obviously, it won’t work every time guaranteed but chances are more than 50% that it will be winning which is better than casino.
4. As a trader, we always bet(after proper analysis) for less risk and high reward by placing a stop loss and target, unlike casino. In casino, it will always be 1:1 RR ratio.

In Sideways Scenario:

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1. Stock market mostly remain sideways(70%) than trending(30%) as per the data. 
2. Hence when the price is rangebound, you can trade using a horizontal channel using support and resistance.
3. With proper RR ratio and stop-loss, you can make the market play in your favor to have the statistical edge over the market. 

This is how professional traders make market work in their favor which means trades like casino. Because when you keep stop loss and according to your risk to reward ratio you lose 50$ but when you win, you win 100$. Keeping in mind you RR ratio is 1:2.

If you keep above consistently, you are going to make money in the stock market. 

Book Alert:

The Little Book Of Common Sense Investing

By John C. Bogle

KEY TAKEWAYS

• Always have a statistical edge over the market in your trading system.

• Proper risk to reward ration must be used.

• Keep trading journal.