Trading has long been likened to gambling, and while there are distinct differences between the two, both trading and gambling do share a number of things in common.
The element of risk, for example, is inherent in both, and effective strategies are crucial to success, whether playing roulette or playing the stock market. While it’s certainly possible to apply gambling strategies to trading, and vice versa, in this article, we’ll show you how to trade like a casino for maximum profitability.
You may have heard the phrase “the house always wins”, and that’s because of something called the house edge. Every casino game, be it roulette in a brick-and-mortar casino or jackpot slots at online platforms like SlotsLV, has a house edge, which is a percentage that represents the profits a casino can expect to make on average wagers. With that said, keep reading if you’re interested in learning how to maximise your edge as a trader to make consistent profits.
House Edge Explained
The house edge can be easily understood as the statistical advantage that a casino or gambling establishment has over players, and it’s determined by the rules and payout structure of a game. It’s typically expressed as a percentage, representing the average amount of money that the casino expects to retain over the long term.
For example, if a game has a house edge of 5%, this means that over time, the house can expect to keep around £5 of every £100 wagered by players.
To further support profitability, every casino sets a table limit on their games, determining the maximum amount that a player can bet. This is essentially their risk management plan and ensures that even if a player is enjoying a long winning streak, the casino won’t be put out of business.
How the Casino Mentality Differs from the Gambling Mentality
It’s well known that the trading arena is a complex one with several risks and uncertainties, and the same can be said for casino gaming. Instead of using a gambler’s mentality to approach trading, switch your thinking to trade like a casino.
Every great trader knows that a statically sound trading strategy is built around risk always being less than the potential reward. There’s no getting away from the fact that, in the trading world, there’s always a possibility of gain and the risk of loss – they’re both ever-present realities.
A gambling mentality takes a more casual approach to risk, possibly even going all-in on larger wagers in the hope that lady luck comes through for a win. The casino mentality, on the other hand, is entirely focused on edge. So how can you identify and maximise your edge as a trader? By understanding the relationship between trade size, risk, and reward.
We know, for instance, that larger trade sizes tend to involve higher levels of risk and reward. This is because larger trades have the potential for greater profits but also carry a greater risk of loss. As a trader, you need to carefully balance the size of your trades with your risk tolerance and investment goals.
Similarly, the state of the overall market can impact a trade; bull, bear, and sideways markets all affect the value of an asset that a good risk and reward strategy needs to accommodate for.
Tips to trade like a casino
1. Know your trading metrics
Top traders take a holistic approach to reviewing their performance that involves more than simply analysing win rates or profit/loss ratios.
To achieve true success, traders must monitor a range of metrics and leverage them to inform their trading decisions. This includes assessing not only their own performance but also the performance of the assets being traded and market conditions and trends.
2. Adapt your strategy to market conditions
In the trading arena, market conditions change, and top traders know that they need to adapt to changes in order to trade like a casino. This can be accounted for by creating a strategy that can both sustain profitability in a bear market and still deliver the minimum amount of returns needed to make a profit in a trending market.
3. Follow market patterns
While financial markets are inherently unpredictable, patterns can be observed and utilised to make informed trading decisions. Candlestick patterns, for example, provide valuable insights into market behaviour, while price action patterns can help traders anticipate market movements.
Understanding market patterns is crucial for successful trading, much like how casinos rely on patterns to ensure profitability. By following patterns, traders can increase their chances of achieving long-term profitability.
4. Have a contingency plan
Research into the casino market indicates that operator revenue is almost always lined with economic growth. In the event of a downturn or recession, casinos will implement contingency plans that mitigate the financial risks of less consumer spend. This is also an approach that top traders implement when stuck in a losing streak or if the markets enter a sudden collapse.