Easier Than Running Your Own Casino

Posted on Mar 20 2015 - 9:12am by Sharpe Trade

Unreal …

I’ve been trading for a long time.  And although I’ve seen ‘turns’ and ‘twists’ of ‘the dice’ before … even after all these years?  What is going on with my portfolio right now still causes me to shake my head in wonder.

What am I talking about?  Well … as I stated elsewhere on this website, my portfolio was down for the year.  Nearing, my draw-down kill-switch, which for me personally is -5% on the account.  At that point, I “kill” active trading, and put my account on a strategy with 90 years of backtesting behind it, to re-coup those losses.

As we provide liquidity to the capital markets, as traders we are basically working probabilities.  We work and massage those probabilities.  At times, we get it wrong.  And the nature of probabilities state that at times, we will ‘get it wrong’ on a number of trades for an extended period of time.  It’s just the way the numbers work.  The mean-reversion of probabilities. Which is ok in the end, because as I stated, I have risk-control procedures in place for such events if the draw-down becomes too severe.  And I had just accepted that I was at ‘that point’ for my portfolio.

I had simply made a number of bad trades.  Trades that just didn’t go my way.  Realizing they weren’t going my way, I made a couple of small adjustments to trades that were causing me to lose money, and accepted outright losses on two of them.  This left me with two trades, out of four.

Those two trades that I left on this morning, are RIPPING in my favor.   If this continues?  There is a scenario wherein I could end up profitable for the year, out of a 5% draw-down hole.

Such ‘twists’ and ‘turns’ of probability still cause me to shake my head in wonder.

I tell aspiring traders all the time …

Casino’s lose money every day.  Individual ‘bets’ in which they lose to the player.  But they know their numbers, and they work their numbers. In BlackJack, the Casino’s edge is only about 0.62%.  They rake in millions on those tables.  The difference is that in trading, you can have much better odds

I’ll just have to wait and see how these two trades turn out.  Because since this is a probability game … there are no guarantees and there is no such thing as ‘certainty’.

As we provide liquidity to the Capital Markets, it’s all just a throw of the dice.

Of course, I like to use loaded dice as I trade.

But still …

1 Comment so far. Feel free to join this conversation.

  1. David Bradley April 20, 2015 at 9:09 pm - Reply

    Casino’s; I hear that all the time, “Trading is Gambling” and my reply is always, it may be a form of gambling, but, for a trader, with all the data we take into consideration before we enter the trade, it is more like counting cards and there is an edge to that.
    My most valuable lessons from pros like yourselves is money management, risk control, and performance tracking is more important than everything else.

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