Today we arrived at Caesar’s Palace in Las Vegas for the 2010 Futures and Forex Expo. As I was walking around the casino floor, I couldn’t help but think about the ironic similarities between the casual gamblers and most day traders.
The correlation between gamblers and most day traders
There was a guy sitting next to me at the Blackjack table; I could see the hope and anticipation in his eyes. First, he gets a 7 which doesn’t get anything but a mild frown. Second, he lands a 4. His eyes light up like a slot machine that just hit a jackpot! As a fellow “participant”, I can’t help but cheer him on when he doubled down. Boom, the dealer slams down a King. ”21 baby!”, he shouts.
It wasn’t a split second after his big hit that I realized how ridiculous his (and my) enthusiasm was about the prospect of making money at the Blackjack table. Sure, one can play a strategy that has the best odds… but ultimately, the house has the edge. After all, the Vegas strip wasn’t built making gamblers rich. Some people don’t even know the rules of Blackjack, let alone have the confidence that they’re playing a winning strategy. Yet some still have this unrealistic hope that they’re going to make a fortune sitting at that table.
Almost every day I talk to traders who are day trading FOREX or swing trading e-mini futures, who don’t know if their strategy has a possible positive expectancy. Some traders know their trading system isn’t winning, but out of sheer desperation and not having any better options, continue to risk their capital.
Now I’m not bashing the excitement of gambling or denying the fact that some people make money gambling. In fact, next to poker, Blackjack is my favorite “training game” to get me ready for trading. I don’t sit down expecting to quadruple my money (even though it’s happened more times than once). No matter if it’s trading eminis or gambing, the end result is the same: to make money.
The only way to run your business like a successful day trader
So, I think we should all take a step back and realize the only true way to become successful at this game of odds. We have to become the house! It’s vital that we find an “edge”, or something that shows you a profit potential. Now I’m not talking about just over optimizing for historical conditions like the piece of junk trading robots. I’m talking about using a trading strategy that gives you a statistical edge over other market participants, properly managing your risk and profits, and developing your skill to execute your strategy in the live market. It’s easier said than done.
The market needs participants with the “gambler” mindset. In the end, it’s the emotional decisions of the irrational traders that feed the small minority of profitable day traders.