Is there a trading edge, while trading in the stock market? Is it gambling?
As we know, gambling is luck-dependent and involves some risk.
The honest truth is that trading is gambling, the stock market is a huge legal casino.
Today I’m going to show you how I really make money as a trader. I make money and build my wealth by trading on the stock market.
Table of Contents
- Trade like a casino for consistent profits by understanding how to use leverage or trading edge.
- Understand how to spot opportunities, and trading edge.
- Use a trading edge plan and follow it religiously.
- Stay disciplined and never overtrade.
- Roulette is rigged
Trade like a casino for consistent profits by understanding how to use leverage or trading edge.
“The house always wins”
In gambling, players always lose money in the long run. Sometimes you win or lose, you can have a winning streak based on luck, but luck doesn’t last forever.
At some point, your luck runs out and you lose everything you’ve.
On the other hand, the casino always makes money in the end.
The casino always wins, no matter what happens. Let me try to explain why.
The casino offers free food, free entertainment, and free drinks to attract people, just like the stock market:
the more people play, the more money they make.
“How can a casino ensure that it always makes money on a game of chance?”
the secret of casinos that always make money, in the end, is that they manipulated the games to have a statistical advantage.
they have a positive statistical chance of success, while the players have a negative statistical chance of success.
If you really want to understand the math behind Cassino’s success, you can read it at the end of this post.
Understand how to spot opportunities, and trading edge.
90% of people who trade stocks will lose money, just like gamblers who go to a casino.
The reason why most people lose money is that they’ve no strategy. They buy based on rumors, based on emotions, based on opinions, based on tips.
When you buy a stock, the chance of being right is 50/50.
it’s random, either it goes up or it goes down.
But the truth is much worse than that.
In a casino, If you bet a dollar, you can only lose a dollar.
In the stock market, most people buy a stock,
They act on their feelings, lose more when they’re wrong, and make less when they’re right.
They hold on to a loser until they lose big, and they take small gains for fear of losing everything.
Use a trading edge plan and follow it religiously.
Let’s try to copy the business model of casinos.
As we’ve already explained, people gain a little when they’re right, and they lose a lot when they’re wrong.
Let’s do the math,
As traders/investors, we always want to make money at the end of the day.
Just as the casinos manipulate the game to have a statistical advantage, we want to do the same in the stock market.
Retail investors, buy/sell a stock the odds are 50/50 chance, it either goes up it goes down.
As investors, we do this after looking for repeatable price patterns.
As with technical analysis and by applying these price action patterns, we can enter when the statistical advantage is in our favor.
3 types of trends
the market is either moving in an uptrend, in a downtrend or it’s moving sideways.
We all know that stocks don’t go up in a straight line. They make wave patterns called impulse corrections.
“What’s an impulse correction?“
When a stock corrects to a support level (moving average or support level), we get a repeatable wave pattern.
Each time it reaches this level, it rises again.
There’s a high probability that the price will change direction on that level.
“Is it a guarantee ?”
Of course not, the chance of it going another way it’s more than 50/50.
Let’s say that our trading edge is 55% while when
we lose is 45%. our statistical edge is 10%.
This is way better than casinos. i.e the casino’s edge was only 5.4%.
Stay disciplined and never overtrade.
Being a professional investor is better than owning a casino.
when we trade, we never bet at a ratio of 1:1, but always at least 1:2, i.e. we always react to earn two dollars or more.
We can achieve this by setting a stop loss to guarantee how much we’ll lose and setting a profit target.
In other words, you risk 1 to make 2. You risk 1 to make 2, at a 55% win rate, and that’s how you gamble on the stock market.
Let’s do the math again
let’s assume, for example, that we make 100 trades.
Our win rate out of the total 100 trades is 60%, which means I’ll win 60 trades.
This causes us to lose 40 trades.
When I lose, I lose $1 every time.
When I win, I win at least $2.
we enter into the trade only if we have a risk-return ratio of at least 1 to 2.
So if I lose, it equals $40, but if I win, I earn $120.
Remember that in every trade I’ve no idea whether I’ll win or lose. We don’t pray for luck, but instead, we use statistical advantage.
if the statistics are in my favor, I earn $80, i.e. if I put $1 on the trade and bet $100, I get back $80, which is an 80% return.
that, my friend, is the way professional traders manipulate the stock market so that we always make money consistently.
at the end of the day, this is how we can increase our income and wealth.
Conclusion
People who’ve been successful in other areas of life outside trading, come into trading and have developed thought models and belief systems.
People are naturally wired to behave in just this way.
we need to reprogram that to give you new ways of thinking. trading edge.
Deep dive into what’s trade
it’s more like a casino, except we’re the casino. A casino works solely by designing a game with certain rules and risk management.
there are table limits, that’s their stop loss, they’re only willing to lose some on trade.
they design the rules, and they design their system, just like we design a methodology and trading and risk management to have a positive expectation.
“They’ve created a system that’s a positive
expectancy and they just want to get a sample size, they just want to get a bunch of trades on the books“
We want sample size as trader too.
For more Trading Edge posts you can check here:
Roulette is rigged
Game Rules
Roulette is a giant wheel with numbers on it.
If you as a player throw the ball and spin the roulette, the ball might land on one of the numbers.
The player can bet which number it’ll be.
Black, for even numbers or red for odd numbers.
Many people think that they have a 50/50 chance of being right when they make a bet with the casino.
Wrong!
it’s not a 50:50 chance because the casino manipulated the game.
they’re all together 18 red numbers 18 black numbers, but they’re two green numbers that are the zero and a double zero.
Here’s the secret…
if a player bets on black, the chance of being right is 18.
because there are 18 black numbers, not 36?
NO… 38 in total
Let me explain this to you
18 black 18 red 2 green.
The casino’s chance of winning is 20 out of 38 because if the ball lands on the green, the casino also wins.
the chance of the players making money is 47,3%
the chance for the casino to make money is 52.7%
Voilà, here’s the casino advantage.
The casino’s advantage over the players is 5.4% because that’s how they make all the money at the end of the day.