Trading like a casino
Reading time: 2-3 minutes (520 words)
Successful trading is purely based on mathematics. There is no luck involved. Because numbers don’t lie. Many businesses are built around mathematics. Think about betting companies like Unibet. The things you bet on are based on mathematics. All casinos in the world follow the same system. The simple fact is, if probability is on your side, you’ll never lose in the long term. That is mathematically impossible.
A casino will never lose money in the long term. Simply because they win more trades (games) then they lose. And the amount of games they lose is actually quite big. A casino loses at least 40% of all the games played. Even if they lose 49% of all games played, they still win 51%. One percent seems small but this applies to every game ever played. So they make 1% profit of every play in the casino on average. Multiply that with all visitors all around the world and that will make a huge amount of money. They even throw in free food and drinks. Because they know that each time you play, they have a higher chance of winning. That does not only count for each visit you make but literally every bet. So the best tactic for anyone visiting the casino is simply place just one bet and call it a day. Because the more bets you make, the higher the chance you will loose.
In European roulette you have 37 numbers. Only one number is not in your favour: 0. When the ball rolls on zero the house wins. Your chance of winning when placing a bet on red or black number is:
- Red: 18/37 = 48.6%
- Black: 18/37 = 48.6%
Without going into the specific numbers, you can already see that the casino has a higher chance of winning if you place a bet on either red or black. The longer you play, the more you lose. Adam Khoo made a great video about this:
If you base your trading system on mathematical outcomes, it is impossible to lose in the long term. As Adam explains in the end, even a negative amount of winning trades can be in your favour. For example, if you have 100 trades and you lose 60 trades and only win 40 that might seem bad. But if you lose $1 every time you lose and win $2 then you lost $60 but won $80.
This is how professional traders make money in the long term. They have built trading systems where their probability of losing the trade is not necessarily lower than the probability of winning but they make sure the win/loss ratio is much higher on the winning trade. Basically meaning, they can be on a losing streak but just one win can make up for all the losses. This is pretty easy to understand but to put it in practise it’s completely different. Because you need to figure out the trading system. These systems are built on experience and knowing how to use stop losses and leverage. These are all advanced techniques not suitable for beginners.
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How you think about this?