Day Trade Like a Casino to Make Money | Step by Step Breakdown

If you want to become a successful trader, you have to trade like a casino. Yes. You're probably wondering, like a casino. What does a casino have to do with trading? Now, a casino and trading has a lot in common, more than you actually think. So two of the main components that a casino operates off, that we as traders need to replicate, is that casinos operate off having an edge and protecting their downside, meaning having risk management. These two components allow casinos to be consistently profitable in the long run. And as I mentioned, our job as traders is to replicate the same thing casinos are doing and replicate that into our trading. So with that being said, let's first dive into how casinos operate, and then I will break down how we can take the same framework in our own trading and duplicate that. This is how a casino operates. So a casino has an edge, right? And every single trade they take or every single transaction they have, they have an edge. And with that edge, they have risk management applied, meaning they are protecting their downside. That leads to them having a very profitable, profitable system. We as traders, once again, want to replicate the same thing. So here's a quick game of roulette. So for people that are not familiar with this game, the idea is for you to pick a color, right? In this instance, there are 38 total spaces. 18 red, 18 black, and 2 green spaces. Now, the idea here is if you risk $100 in one of these spaces and you are essentially right, you will double your money. So if you risk $100, you'll make $200 if you pick red or if you pick black. The problem here is everyone thinks that this game is a 50, 50 game. This is where people are wrong. What people need to understand is this is a game where the casino has an edge and in every single one of these pockets. So if we go down into these pockets and we take a look, you guys can see the probability of the red space hitting is 48%. The probability of the black space hitting is 48%. The probability of THE green space hitting is 5%. This ultimately gives the casino a 2 to 4% edge, depending on what color they are holding off on. So them having this edge ultimately gives them the upper hand. This is what create the casinos to be the house. This is why people that go into the casino may win today, may win tomorrow, but ultimately they lose in the long run. But casinos are still up and running is because they become the house. And they become the house by having a probability of having an edge in every single transaction, right? Because think about it. If casinos did not have an edge. If they did not have a probability, they would be out of business. Now, the second component is how they incorporate risk management. They make sure that majority of the trades that they're taking or transactions that they're taking, there is a max amount on every table. So when you go to some tables at a casino, it might say the max amount you can bet is 2000 or the max amount you can bet is 5000. They have a max loss for every single table that is present. So once again, we have the edge, meaning probability of every trade, every transaction, and we have the risk management. Those two combined gives us the ultimate probability aspect or the ultimate profitable system, or that's essentially how we become the house. So we want to become the house by once again having those two components aligned. Now, how does this correlate into trading? Now, this is what I want you guys to start incorporating into moving forward. And this is how I want you to start looking at every single trade, right? So whenever we take any trade, as mentioned, trading is a probability game, right? Every single trade we take, there's a probability of it will maybe go up or it will maybe go down. Our job is to identify that probability. So if we have a trade, right, all right, we got a trade. Now the question mark is, does this trade have a higher probability of going up or does it have a higher probability of going down? So that is how we gain the edge. Once we gain the edge, now we have to apply our risk management rules. Now, stopping on the edge aspect, this is where I kind of want to dive into a little bit. We want to identify what is an edge, and I'll make a separate video talking about that, but we want to identify what is an edge for each one of us. What represents a high probability, what is our trading style? What game are we playing, essentially, right? And based of every single trade, every single marketplace, we want to have that aspect of edge. We want to have that. That aspect of probability with the understanding that a probability allows us to still be wrong. A high probability does not mean we're always going to be right. There are going to be times you are wrong 100%. But now the way we protect that is by having the risk management, as I mentioned earlier. So taking a step back, right, one, you want to have the edge. Once we have the edge, once we have a strong edge added into our trading, right, we have the probability. The second thing we want to implement into our trading is the risk management component, right? What is and how do we allocate the risk Management. Now, if you have, let's just say a $10,000 account, you don't want to go and risk $5,000. Let's just say you have a $1,000 account, you don't Want to go and risk $500 on one single trade. You want to make sure your risk tolerance is equivalent to your account size. A typical rule of thumb is don't risk more than 2% of your account size on a trade. If your account size is, let's just say, $10,000, you should not lose no more than $200 in a single trade. Just giving you a rule of thumb risk. Right? Now, once you have the risk component down and once you have your edge down, your job as a trader is to identify does this strategy or does this probability or does this edge actually work in the market? Now if it does work and it does showcase some levels of cons, you want to start trying that by backtesting, by going back, testing these strategies, understanding in historical data, historical transactions, historical price action to see does this move that I'm essentially trading, does that actually work? When doesn't it work? When does it work? And then you want to keep your risk consistent. This is another thing I see traders kind of mess up on. They allow their risk to become very inconsistent. So think about this, right? Imagine you take a trade where you lose $100, right? Right after you lose 100, you take another trade where you lose 100, right? Now imagine you alter this system where you incorporate a trade where you lose 500. The moment you increase that risk tolerance within a certain system too rapidly in a short period of time, you allow your losses to be massive. Your losses have to be contained. The moment they become very, very large, it destroys the whole system. And that's where I'm going back to the casino system is, that's why and how casinos are able to be profitable because they keep that risk within a certain range. Hey, our max loss is 2k and we're not going to mess this up. Now that's one component that messes our trading up. We, you know, mess up our strategy. We kind of go all over the place with, you know, altering our strategy. Our risk is not consistent. The third element is emotions, right? We allow our human emotions that we obviously need in our day to day lives. We, we allow that to come in and destruct our trading. Our trading gets destroyed because our emotions come in and they play a role. So in a trade where we should lose 100 and where we should follow our stop, we don't Follow our stop and we end up losing $200 on this trade or $300 on this trade. We end up losing two to three times more than what we anticipated or what we plan to lose on a particular trade. That's where our emotions kick in. Where you don't want to sell a trade, where you don't want to exit for whatever reason. Other instances are when a trade does hit your profit point, when it does make you money, people get greedy and they don't know how to take some off the table or they don't know how to, you know, exit their position accordingly or even follow their plan. They end up hoping to make more and, you know, the trade doesn't work out sometimes. Another element is I see traders that allow their emotions to step in where a certain strategy is working for some time period. It's working for a week, it's working for two weeks. And the moment that strategy stops working, they just kind of take a step back or they switch up the strategy or they jump ship, right? And when you compare our trading structure to the casino, you'll notice that the casino doesn't do any of this, right? They have this predefined structure that they continuously follow. And even when they have four or five losing trades or four or five losing transactions, they still keep the risk the same. They keep the same strategy or same game they're playing because they understand over a course of 100 or 200 transactions, they, they will be profitable because they have the edge. So with that being said, what I wanted to recap everything on is guys moving forward, every single trade you take, make sure you have an edge, identify the edge, make sure there's a probability of the trade working in your favor. If you have an edge, make sure you go and test the edge. Understand that this edge works and under what market conditions it works, works under. This is very critical for you as a trader to do. You do not want to just randomly assume that a strategy is going to work, even if it works one or two times, and then start trying to trade it without any backtesting done, without any understanding of when this works and when this strategy doesn't work. Once you have backtested, once you have found two, three strategies within the market that you think make sense, that have a high probability, then you want to identify a solid risk management plan within your trading. As mentioned before, I would, I would try to stay in the 2% rule. Do not try to risk more than 2% of your trading account. Keep that consistent for a couple of months. No matter how well you do, no matter how excited you get in the early months, keep that very small. And as you keep that small, keep it small and keep it consistent so you don't get the element of surprise of seeing a 5 or 600 loss or something. That's two to three times your average loss pop up. Right? Once those two things are combined, the third and final thing is to be aware of your emotions and understand how your emotions step in and play a role in this whole game. Once you're able to put those three things together, you will have a much easier transition into becoming a profitable trader. With that being said, thank you so much guys for watching. I hope you guys found value in this video and I will see you on the next one.