Trading is like a casino: Reflections on long term success

What was your first thought upon seeing the title of this post?

Many people perceive trading as being very similar to gambling in casinos. This is often the case, but there is another option. In this article I am going to present two contrasting visions that could represent your trading experience from now on.

Option 1
You are afraid to lose money.
You only place trades that you are certain will make money.
You cannot understand why sometimes those trades are wrong.
You sometimes make trades as a reaction to the result of your previous trade(s).
You like to boast to others about your big wins.
You may or may not have a strategy intended to put the odds in your favour. But, due to your emotional reactions to the above, you are unable to stick consistently to it.

You are a typical gambler at a casino, and also a typical trader. You may make some big wins and have winning streaks, but over the long term, the odds are against you and you WILL lose.

Believe it or not, there is an alternative.

Option 2
You fully accept that any trade may result in a loss, and you are ready to lose however much money you are risking.
In other words, you don't care about the outcome of any individual trade.
You know that each trade is unique, despite how much it may look like a situation you have been in before.
You consistently take every trade that your system gives, regardless of the outcome of the last trade(s).
You develop a strategy to give you an edge in the market, putting the odds in your favour. You are able to stick to this strategy, despite any short-term set backs, as you know that it will be profitable over time.

This edge, and more importantly the ability to stick to it over a long period of time makes you the owner of your own casino. Your different strategies are the different games available on your casino floor. Each one will result in losses sometimes. However, by keeping the odds in your favour, you know that over time, your trading business (yes, you must treat it as a business) will almost be a license to print money.

Today we were stopped out of our JNUG long position, with the price hitting the exact price of the stop before rebounding and closing the day on the high. If you fall into the first category, this might bother you. However, if you are simply running a casino, you understand that you will have to pay out to your clients many times. You know that, over time, you will make money. So it simply doesn't bother you.

In fact, this market put on a new buy signal on the same day as stopping us out. If you are a gambler, you might now have fear to take that trade as you don't want to lose again. If you are a casino owner, you want to take every valid signal, as the more trades you place according to your strategy, the more your results will trend to the profit expected by your system.

You must teach yourself to think in probabilities.

Step off the gambling floor and become the owner of your own casino.

If you can bring this analogy into your trading, you will overcome one of the main issues causing the long-term failure of most traders.

These ideas were inspired by the book Trading in the Zone by Mark Douglas. For more on this idea and other psychological work to improve your trading results, I highly recommend reading it.

What do you struggle with in your trading? Let me know in the comments below.

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