How to trade like you’ve got a casino’s edge
Risk is the currency of the markets—Period. Without understanding and
controlling your risk; you are sure to eventually lose your capital. I promise.
It is the most critical lesson that I have learned; understanding risk changed
me from an unsuccessful trader, to a winning trader.
Some people have said to me that you really don’t need to worry about your risk
if you are a good trader. That is simply wrong. Let me explain this with an
example. If you have ever seen the poker movie “Rounders†with Matt Damon, it is
easier to understand. Matt Damon’s character Mike McDermott is a phenomenal
poker player; he has a statistical edge in the game. But, he is broke. Why isn’t
he wealthy? Casino’s have a statistical edge in their games, and they have lots
of money. So, why wouldn’t anyone (including stock traders) who has a
statistical advantage in what they are doing make lots and lots of money. The
answer is… (more)