Friday, December 04, 2009

I'm the Casino, Part II

OK, so you had to wade through that 1st part to get to the payoff: why I'm the casino.

Where I differ from the gamblers and other traders is through the system I trade. Without divulging everything about what I do, all you really need to know is that my system does not rely on luck or winning streaks as I'm the casino. I'm on the side of the market that dictates the direction price moves, either up or down. I have a quantifiable edge that I employ in every trade I make. I don't run into winning or losing streaks, I simply follow what the market tells me and take what I'm given. I don't press, I don't have to adjust my system based on market conditions or how I've done over the last few trades, I just trade.

The casino doesn't earn all of it's profit over a couple days, it earns the profit slowly. I'm the exact same way. I don't look to make a single HUGE trade that makes a month's worth of profit or one that erases a series of losses from a losing streak like so many other traders out there. I prefer to make many trades and take just a little each time and let the profit compound over time. I don't know if you've been to Vegas recently, but they're still building hotels and casinos and the skyline is cluttered with giant money-making skyscrapers so making money slowly but surely is pretty damn effective for casinos and it's no different for this trader, though I've yet to build a skyscraper. HA!

Casinos and I also share a similar business/growth plan: leverage. Rather than trying to make more on each bet, casinos have figured out that you just have more ways to generate more outcomes. Bryan/Casino comparison time!!!

Let's say a casino has a daily goal to make $100,000 though Craps. Rather than trying to get that entire amount from a single craps table, what does a casino do? Yup: they just put out more tables...let's say 10 cuz I don't want to do the hard math. So now, instead of trying to get $100,000 from a single table, they just need each table to pull in $10,000. While getting $100K from one table may have been possible it was a much more difficult task than simply aiming for $10,000 per table.

Trading is no different.

Let's say I have a daily goal of $1,000 (easy math) by trading the eMini S&P or ES as is it's commonly called. If I'm trading 1 ES contract, that means I need to make 20-points on that one contract. It can be done, but it's VERY difficult and depending on the daily volume it can be pretty much impossible. So what do I do? I start trading more contracts; let's say 10. Now, I just need to make 2-points which is multiplied by the # of contracts I'm trading and my 20-point goal is met. 2 points is a much easier goal and much less stressful as you're not trying to swing for the fences but just need to hit a nice single to be successful.

Are other traders the casino? Yeah there are plenty of traders that operate as if they were the casino, though we're the exception to the rule. I believe to be a successful trader you MUST be the casino, otherwise you're destined to be a failure; a gambler that operates at the mercy of probabilities and luck and must know when to walk away and when to run.

Am I going to change the way that the majority of people view my profession as anything but a different form of gambling? No, and that's fine. I'm hopeful that maybe this enlightens some of you and helps you understand that while this may be gambling, I'm the casino and my business is simply to take advantage of a quantifiable edge on each and every trade and slowly amass profits while watching other traders go up and down on the roller-coaster that other traders/casinos and myself force them to ride.

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