Investment Consulting

Wednesday, March 20, 2013

The Art of the Bet

The Art of the Bet

Most people don’t like to mix the words “trading” and “gambling.” For many, this somehow gives the impression that trading is like some secret poker game in someone’s basement, a dark alley game of dice, or weekend trip to Las Vegas. While these three examples may not sound glamorous, they all share the important aspects of trading. Whether you are playing a poker game for money, trading one of the various markets we trade, or Pepsi buying commercial time on television, money is being put at risk with the intention of a desirable return on that investment.

In any of these examples, there is no certainty, there is only the opportunity for better odds and the astute trader (market speculator) knows this. Even Pepsi doesn’t know what kind of return they will get when they buy commercial time on a network. They have an idea but they never know the exact return, it’s a gamble.
You see, when you keep it real and understand that trading is gambling, you will then understand that it is the ultimate form of gambling. It happens to be the type of gambling where we the trader can STACK the odds in our favor, much better than Vegas can. Imagine you are playing a card game in Vegas only this time, you can decide whether you want to put your money down on the table AFTER you see your cards and the dealer’s cards and also bet as much money as you like on this hand. That’s trading my friends and that’s why it is the premier form of speculating on the planet. I have a friend who always tells me that the trading I do is just gambling and I tell him he is right only that it happens to be the type of gambling where you can absolutely stack the odds in your favor. Ceaser’s Palace, Mandalay Bay, and the others don’t enjoy the odds we are able to attain in trading if you know what your doing.

With objective supply and demand analysis, I have the ability to clearly determine probability, risk, and reward and only put my money at risk when the odds are stacked in my favor. Here is an example:

When to buy:
A Pullback in price to demand (not conventional support)

Odds enhancer:
1) Properly located on the larger time frame supply/demand curve
2) With a substantial profit margin of at least 3:1 (reward/risk)
3) A Quality demand level
  1. Strong rally in price from demand suggesting a big supply/demand imbalance
  2. A demand level that has not been retested yet which offers the greatest odds
  3. Very little time spent at the level suggesting a big supply/demand imbalance
4) Is the decline in price to demand a stair step decline suggesting a low odds buy or is the decline a sharp drop in price to demand suggesting a much higher odds buying opportunity

Each odds enhancer increases the probability of your potential trade (and there are more quality odds enhancers). After objectively assessing your odds based on the setup you see on your chart, you can then decide how much of your capital you want to risk on the trade. Vegas would LOVE to have these odds but they don’t come close. The one thing Vegas does however that brings them consistent riches is that they don’t change their rules when they lose. They know they are going to lose money every day but at the end of the day, they almost always come out ahead with profits.

They have a system that tilts the odds in their favor so they know that all they have to do is stick to the plan and they will profit. Imagine if they became emotional and changed the rules each time they lost. If they did that, they would not enjoy the profits that they do.
Sam Seiden

MG / Negocios e Inversiones

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