Casinos are built on odds and probabilities and to a certain extent, so should your trading system when it comes to the stock market. As traders, we know that we are never going to be right in picking the direction or magnitude of a stock market move all the time. So why don’t we take a page out of the casino’s book and focus more on the odds and risk management?
How Casino’s Make Money
In very simple and easy to understand terms casinos make money by slightly tilting the odds and chances in their favor. Every game you gamble on in a casino has a built-in statistical advantage in favor of the house. That edge can be extremely small (as low as 2% sometimes), but millions of bets with that edge started to add up.
The casino owners could care less about any but getting as many people through the doors as possible to gamble. Hence why they offer free drinks, food, great shows and amazing hotels. The more people gamble, the more the casino makes.
Casinos know the odds and stick to a very strict risk management plan.
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Probabilities and Odds When Trading
It’s fairly easy to find odds data on a particular stock, ETF or index that can transform your trading. By knowing how to analyze historical probabilities you can quickly narrow down your strategy list and choose option strategies that are more likely to make you money over time.
Just like the casino, the concept of trading professionally is knowing up front that you are going to have both winning and losing trades. The key to success is to make sure that the winners outperform the losers on a consistent basis – not just once in a while. Tilt the odds in your favor by making smarter decisions up front and managing risk along the way.
In this video, I’ll show you how to find, analyze and choose an options trading strategy using think or swim’s desktop platform tools.