Master of Roulette



A friend of mine, successful trader for years in the stock market, used to remind me that only 10% of his profession where able to make money at the end of the day. Understand, 90% of people who trade stocks will lose money, just like the players who go to a casino. The reason reminds the same, most people will lose money because they play with fear and without a plan to stick to.

Stock Market is a giant casino, it’s a legal casino where successful professional traders replicate at a better edge the business model of the casino. They rig the stock market and always make money consistently at the end of the day.

Remember that when you go to a casino: per example if you bet on even money chances, so if you bet $1, you lose $1 or you win $1. So you’re risking one to make one. And remember that the Casino’s edge over the players is 2.7%. The result : Most people win small, they lose big and they’re right almost half the time. In the end, they always lose money

Successful professional traders never bet one for one, they always bet at least one for two. In other words, they always risk 1 to make $2 or more. They study the markets, look for price action patterns, or call technical analysis. And by applying these price action patterns, they are able to enter them when the statistical edge is in their favor.

They use a stop loss, a simple tool designed to limit an investor's loss on a security position that makes an unfavorable move. When used appropriately a stop loss can make a world of difference. Whether to prevent excessive losses or to lock in profits, nearly all investing styles can benefit from this tool.

Think of a stop-loss as an insurance policy : You hope you never have to use it, but it's good to know you have the protection should you need it. The advantage of stop-loss is that they can help you stay on track and prevent your judgment from getting clouded with emotion. "Emotions can make you bet based on rumors, based on opinions, based on pips. Make you lose more when you’re wrong, and make less when you are right. Playing with fear because you don’t have a proficient strategy to follow".

Finally, it's important to realize that stop-loss orders do not guarantee you'll make money, you still have to make intelligent investment decisions.

When you look at the stock market, basically there are three things that could happen. The market either goes :

  • On an uptrend
  • On a downtrend
  • Sideways

Let me give you an example focused on uptrend and sideways.

A stock is on an uptrend and you notice that the stock doesn’t go up in a straight line. It goes in wave patterns, this is what we call an impulse, correction, impulse. And oftentimes when it corrects to a support level, we call this a moving average or support level. On an uptrend, when the price hits a support level after a retracement, there’s a high probability that it’s going to go up. That’s when professional traders buy.

The market is going sideways. Usually when a market goes sideways it’s in a range, this is what we call resistance, support, resistance. So, you have to see this price pattern. It doesn’t happen for every stop, It doesn’t happen every day, but when you see it, you can trade it. The price hits his support level, there is a high probability that it’s going to go up.

Is it a guarantee ? Is it 100% it’s going to go up ? Of course not, it could still go down. it’s a trading probability, when you enter at this price patterns, the chance of it going up, is more than 50/50. It’s not 100%. But let’s take it as a 60% chance it’s going to go up, or even 55%. There’ll be a 40% when it fails, and the trend reverses into a downtrend. So 40% you lose, and 60% you win. Lose, win. You can make money in the stock market even if you have to pay a commission for every transaction.

What’s the edge ? The statistical edge is 20%. This is better than casino. The casino’s edge was only 2.7%. And they make billions, or hundreds of millions, whatever it is. Even with only 55% of the time right and 45% of the time wrong, that’s still a 10% edge. So being a professional trader is better than owning a casino, if you think about it that way.