Many people think they are traders when they are really just gamblers that could get better odds in Las Vegas betting on the roulette wheel than what they get in the financial markets. The difference between a trader and a gambler is similar to the difference between a casino and a gambler. The casino paradigm for traders was introduced in “Trade like a Casino” by Richard Weissman and this thinking process can really help traders become profitable.
Why would the casinos in Las Vegas be so big and luxurious and gamblers mostly just be broke? Casinos have a statistical edge in their games of chance against the players of those games. Time is the friend of the casino and the enemy of the gambler. The more someone tries to beat the casino the more their chances of losing in their attempt. The casino also has table limits so a gambler cannot keep doubling down to eventually win there is a ceiling to the bet size the casino is willing to take the risk on. The casino does not risk its business and profitability on any one trade it has table limits to make sure no one win makes any difference in its profit and loss statement. The casino allows its edge to play out over a huge amount of trades so the odds come back in its favor over a large sample size of bets.
Another huge edge that the casino has is that it has no emotions; the casino does not care about any player and whether that player is winning or losing. In contrast the gambler is filled with emotions wanting to win back all their losses so they trade with the odds against them and usually trade bigger and bigger wanting that one win to get them back to even when it usually just takes them into bigger and bigger losses. Another plague of the gambler is that even after winning streaks they do not take their profits and leave with their money, they stick around and lose it all either through getting arrogant and trading too big or losing their discipline in their strategy that was working for awhile. Gamblers are generally doomed to be losers.
Ten Ways to Be a Trader NOT a Gambler
- Trade based on the probabilities NOT the potential profits.
- Trade small position sizes based on your account NEVER put your whole account at risk of ruin.
- Trade a plan NOT emotions.
- Always enter a trade with an edge that can be defined DO NOT trade with entries that are only opinions.
- Trade based on quantifiable facts NOT opinions.
- Trade after extensive research on what works and what does not. Don’t trade in ignorance.
- Trade with the correct position sizing since risk management is your number one priority and profits are secondary concern.
- Trade in a way that eliminates any chance of financial ruin NOT to get rich quick.
- Trade with discipline and focus DO NOT change the way you trade suddenly due to winning or losing streaks.
- Trade in the present moment and DO NOT get biased due to old wins or losses.
The question is what side of the market are you operating on? Are you with the majority who gamble and lose their money or are you with the minority acting as the casino picking up the profits that the gamblers consistently lose?