I have suggested for a long time that trading stocks and playing are very similar. It does not mean that you should stop trading stocks, it only means that you need to dominoqq understand something regarding probability of winning when you trade stocks. You need to learn how to put the odds on your behalf when investing in the currency markets.
We trade a system. It is a very good system and it consistently returns in excess of 100% annual on our investment over time. But as good as that may sound if we test our system in various markets over many years involving say about 10, 000 trades, we find that it only wins about 56% of that time period.
I have been studying these market statistics for pretty much 2 decades and without presenting a quarrel here I will state simply that given that market movement is mostly random, no practical trading system should be expected to do better than 60%. If somebody brags they may have a trading system or that they can predict market behavior with 90% accuracy, I assume they are either dummies, charlatans or both.
So we try a system that has about 56% accuracy. In this article I will show how a system with 56% accuracy can still make tons of money and do it with little risk. In order to do this My goal is to compare options trading with casino playing with one significant difference: WE ARE THE HOUSE!
In order to understand the casino side of my argument you have to understand at least one popular casino game, roulette. The roulette table has 36 numbers, half are red and half are black. It appears that if you put $10 on one number that your likelihood of losing would be 36: 1. But you could lose many times and still break even because eventually the ball will fall on your number and the house will pay you 36: 1 or $360.
HOWEVER, there is a catch. If you examine the roulette table there is not just 36 numbers, there are 38 numbers. There have been two extra video poker machines, both green, 0 and 00. When the ball countries on one of those video poker machines the house gets everything.
How does this change the odds? Therefore that the house advantage at the roulette table is 5. 3%. What 5. 3 percent house advantage means is that the house will make $5. 30 for every $100 bet at the roulette table.
Nobody can win at roulette if they keep playing. Over time the house ALWAYS wins and they’ll win $5. 30 for every $100 bet.
OK, now if we are trading stocks how do we get to be the house? We get to be the house by trading a system accurately that consistently wins with 56% accuracy. This considers of course our average wins and our average losses are a comparable. If our system is 56% accurate the house advantage is 6 % and we will make $6 for every $100 bet.
Now that we know that how should we trade? Well obviously we need to trade a lot. Our profits are going to be a portion of how much we bet and so we want to bet a lot. Presently we are trading ninety six markets. We usually get in one day and out the next. We probably average around ten trades a day, but each one has a 56% chance of winning. We make good money with this strategy. We are the house.
I will give you another extreme example from my trading past. Over a two year period I made over 5 million dollars profits, trading a merchant account of approximately 2 million. I made over 11, 000 trades, the average trade was only $385, but I pushed nearly TWO THOUSAND DOLLARS through the currency markets with all that trading. You can make a lot of money with a low house advantage when you are taking a percentage of two thousand dollars!
So how do you get to be the house when options trading? Well first of all forget about brokers, financial experts and stock pickers. You will need a solid computer-driven trading system that you have tested with many markets in many different market conditions. You want to see accuracy between 50% and 60%. If its more than 60% there is a problem with your data or the machine is a joke. You need to diversify across many markets and you need to trade a lot.
And if you do all those things you can run your own Wall Street Casino and turn into rich! You are now the house!