So, you’re headed to the casino and your plan is to make a stack of £5k at the roulette table.

In fact, this is how you plan to support yourself on a permanent basis from now on.

What do you think your chances of gambling your way to £5k actually are?

It’s possible I suppose. But it’s no long-term plan for financial stability is it? The truth is that it would only be a matter of time before your luck ran out. Because you know in your heart of hearts that the house has the odds stacked in their favour.

Now imagine walking into the Casino through a different door…

This time you take the staff entrance round the back and ascend the stairs to your plush office. You have a birds-eye view of the entire gaming floor through one-way glass, because you own the casino!

What are the chances of that same roulette table making £5000 for you now?

It is 100% guaranteed – a mathematical certainty. It’s only a matter of time before your edge in probability pays off because the odds are permanently stacked on your side.

The way the roulette wheel is designed means the house always has a 2.7% edge over the gamblers. That’s for a European table. And the odds on a US table are stacked even further in the casino’s favour, to the tune of 5.26%

Now that might sound like a very small advantage but it accounts for millions in profit. It’s why the casino industry can afford to spend a small fortune attracting gamblers to their fancy resorts. It pays for those big name entertainers performing night after night.

They know they cannot fail to make money so they can afford to focus on one thing and one thing only – getting as many punters as possible through the doors! It’s what keeps those roulette wheels spinning and the betting chips flowing (in the house’s direction of course!).

They’ve got it down to such a fine mathematical model that any anomalies straying too far from their expected returns almost immediately flag-up something dodgy. It could be a croupier on the take, or a wonky roulette wheel where some bright spark has figured out which numbers come up more often than the others. But their model lets them spot it soon enough.

So what’s the big lesson we can take from the casino operators?

It’s this…

The secret of successful trading is to always keep the laws of probability on your side

Forget about trading for high levels of accuracy. You don’t even need to worry about it. You should expect to take some losing trades along the way, just like the casino will have to pay out the gamblers to some degree on almost every turn of the roulette wheel.

The big secret is to always to think like the house instead of the gambler. Keep the odds tilted in your favour and you’ll always make profits in the long run. In fact, let me quickly remind you of 3 simple rules that can keep you thinking accurately:

3 Truths of Trading

1) You don’t need to know what’s going to happen next in order to make money
It means there’s no need for crystal balls or magical ‘never lose’ trading signals!

2) You will experience a random pattern of winning and losing trades
It’s one of the paradoxes of trading that a series of seemingly random results can still boil down to a predictable outcome over a large enough sample size. The key of course, is keeping yourself in the game for the long term, giving time for the odds of success to fall into place predictably.

3) Profit is made simply by gaining more money on your winning trades than you give back on losing trades
You can have trades that make big potential profits ‘only’ around 50% of the time and make a fortune. You can have trades that ‘win’ 90% of the time and lose your shirt. The strike rate of winning trades means nothing on its own, it’s all about how much your batches of winning trades make when compared against the losses incurred by your batches of losing trades. That’s the calculation you need to keep your eye on.

Now it’s so much easier to trade a strategy with a high reward to risk ratio on winning trades. It means you don’t have to maintain super-high levels of accuracy to make money – you’re not held hostage by that high strike rate.

In fact, seek large enough profits and you can even make the odd clumsy mistake, it’ll hardly even scratch the surface of your results.

But how would you go about finding a way to do this that keeps the laws of probability on your side? How could you take a leaf out of the casino’s book and steal an edge for yourself?

I think there are two aspects of such a campaign that you’d need to consider…

First of all, you’d need to take a STRATEGIC OUTLOOK.

If you’re looking for your trades to run on for multiple times reward over initial risk you need to be trading along the path of least resistance, you’d need to position yourself so the natural flow of the market could carry your trades along effortlessly.

Think like a surfer – you want to spend your time riding the waves in to shore, not facing the wrong way and have huge waves come rolling in to pummel you down to the ocean floor!

So for me, a strategic outlook means using an analysis of trend of some description to take a high-probability directional bias in the market.

Once you’ve got that in place – and only once you’ve got that in place – you can start thinking tactically.

TRADING TACTICS is a secondary consideration.

Now this is what most traders naturally gravitate towards straight away but if they took the time to get the strategic outlook in place they’d be taking a much more effective and profitable edge into battle with them.

Trading tactics is the nitty-gritty finding of trade entry points. It’s the identification of stop loss locations and management of trade exits. It is important stuff but it can be elevated to whole new levels of effectiveness when tagged onto the directional bias you take from a strategic outlook.

And the great thing is there are so many ways of achieving a strategic vision and coupling it with cutting edge trading tactics. In fact, there are as many ways of doing it as there are traders in the market. But unfortunately not all traders get a chance to figure it out before it’s too late.

If you’d like to see how I combine solid Strategy and Tactics you might take a look at my Plugin Trader package.

Be Prepared: Market Moving Data Coming This Week (London Time).

Wednesday 22nd March
14:00     USD     Existing Home Sales
14:30     USD     Crude Oil Inventories

Thursday 23rd March
09:30      GBP     Retail Sales
12:45      USD     Yellen Speaks
14:00      USD     New Home Sales

Friday 24th March
08:30      EUR     German Manufacturing PMI
12:30      USD     Core Durable Goods

Monday 27th March
08:00      EUR      German IFO Business Climate

Tuesday 28th March
14:00    USD     CB Consumer Confidence

We have a quieter week ahead for scheduled reports and data but, as always, trade safely and I’ll catch up with you again next week.

Happy trading,