The Art Of The Bet
The Art Of The Bet
Most people donít like to mix the words ìtradingî and ìgambling.î For many, this somehow gives the impression that trading is like some secret poker game in someoneís basement, a dark alley game of dice, or a weekend trip to Las Vegas. While these three examples may not sound glamorous, they all share the important aspects of trading. Whether you are playing a poker game for money, trading one of the various markets we trade, or Pepsi buying commercial time on television, money is being put at risk with the intention of a desirable return on that investment. In any of these examples, there is no certainty, there is only the opportunity for better odds and the astute trader (market speculator) knows this. Even Pepsi doesnít know what kind of return they will get when they buy commercial time on a network. They have an idea but they never know the exact return, itís a gamble.
You see, when you keep it real and understand that trading is gambling, you will then understand that it is the ultimate form of gambling. It happens to be the type of gambling where we the traders can STACK the odds in our favor, much better than Vegas can. Imagine you are playing a card game in Vegas only this time, you can decide whether you want to put your money down on the table AFTER you see your cards and the dealerís cards and also bet as much money as you like on this hand. Thatís trading my friends and thatís why it is the premier form of speculating on the planet. I have a friend who always tells me that the trading I do is just gambling and I tell him he is right only that it happens to be the type of gambling where you can absolutely stack the odds in your favor. Ceasers Palace, Mandalay Bay, and the others donít enjoy the odds we are able to attain in trading.
With objective supply and demand analysis, I have the ability to clearly determine probability, risk, and reward and only put my money at risk when the odds are stacked in my favor. Here is an example:
When To Buy:
A Pullback in price to demand (support)
1) Properly located on the larger time frame supply/demand curve
2) With a substantial profit margin of at least 3:1 (reward/risk)
3) A Quality demand (support) level
- Strong rally in price from demand, suggesting a big supply/demand imbalance
- A demand level that has not been retested yet which offers the greatest odds
4) Is the decline in price to demand a stair step decline suggesting a low odds buy, or is the decline a sharp drop in price to demand suggesting a much higher odds buying opportunity?
Each odds enhancer increases the probability of your potential trade (and there are more quality odds enhancers). After objectively assessing your odds based on the setup you see on your chart, you can then decide how much of your capital you want to risk on the trade. Vegas would LOVE to have these odds but they donít come close. The one thing Vegas does, however, that brings them consistent riches is that they donít change their rules when they lose. They know they are going to lose money every day but at the end of the day, they almost always come out ahead with profits. They have a system that tilts the odds in their favor so they know that all they have to do is stick to the plan and they will profit. Imagine if they became emotional and changed the rules each time they lost. If they did that, they would not enjoy the profits that they do.
Letís take a look at a trade from our Extended Learning Track program, the XLT. During the live trading session, we identified an objective demand level (black box). This demand had a few key Odds Enhancers at play suggesting a low risk, high reward, and high probability buying opportunity when price declined to that level. A short time later, price declined to that level, meaning someone was selling at that demand level. This is where the trade (bet, gamble, speculation) takes place. The buyer is betting that price will rise and the seller is betting that price will decline. Call it a trade, bet, or whatever, they are all exactly the same thing. As the buyer, we know the odds are stacked in our favor; obviously the seller doesnít or they would not be selling at that demand level. By being very rigid in our strategy rules and Odds Enhancers, we are essentially doing the same thing as Vegas. The key for us is to not change any rules and donít think.
XLT Trade May 31, 2012
Price rallied strong off that level which meant profits for the buyer and losses for the seller, this is what makes a market (and a casino).
With the ability you have in trading markets as we do, make sure you have a set of rules that stacks the odds in your favor. If you donít have that set of rules, donít trade because you are competing with traders who do and you will very likely lose. If you are in search of rules that carry better odds, email me, take an Online Trading Academy course, join the XLT if you want. Once you have that set of objective and mechanical rules that help stack the odds in your favor, make sure you stick to it and understand you will still have losses sometimes but thatís ok; think of the casino and all the times they lose in a day. Remember, in trading, gambling, speculating or whatever you choose to call it, the one thing that is certain is the lack of 100% certainty with each individual outcome. Instead of searching for certainty, become a part of the astute trading community that only searches for better odds. And lastly, understand that trading, like gambling is certainly not for everyone.
Hope this was helpful, have a great day.
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