How to build your own Forex Casino

You may have heard it said before, but the most successful traders are those who have effectively built their own casinos. That is to say, they have a statistically proven track record that shows that they have an edge. In just the same way that the house always wins at roulette because of the number zero, so successful traders are able to tip the odds in their favour with the result that over time they will always walk away with a profit. This is what you should be aiming for. Just as casinos have different games that will each bring in profit for the house over the long-run – be it roulette, blackjack, craps, or best of all slot machines – so should you have an arsenal of techniques that you know will consistently bring profitable returns.

Building the structure of the casino

First things first – you need the bricks and mortar. This is of course your trading account. It needs to be built of something solid that isn’t going to collapse – ie a reputable broker or (if you’re spread betting) a spread betting company that isn’t going to give you frequent slippage.

Getting the structure of the business in place

Just as a casino is run as a business with accounts, targets, plans etc, so should your trading be properly structured. You’ll need know how much of your hard earned cash you’ll be investing in the venture, you’ll need to keep records and set yourself targets. You’ll need to know if you’re going to re-invest any profits back into your trading account, or if you’re going to take cash out to invest somewhere else, or to pay yourself for your work.

Most importantly, you’ll need to make sure that you set in place fail-safes and risk management. Just as tables at casinos have limits, so will you need to know how much you’re willing to lose on any single trade. A good rule to go for is to make sure that you never lose more than 2% of your trading capital on any one trade. Make sure that your stop loss and stake size are calculated accordingly to ensure this rule isn’t violated. And make sure you have the discipline to see that you never breach this rule. After a string of losses, it can be very very tempting to risk more in the desperate hope that you’ll win more back. But think of the casino comparison – do they change their limits if a punter gets lucky and has a string of wins? Of course they don’t – their rules are set in stone. They know that they’ll win over the long run as the odds are in their favour. They will have the occasional drawdown, as will the very best traders. But they know to sit these out – and this is what you must learn to do.

Filling your casino with tables

It’s now time to fill your casino with tables. For a casino this is easy – there are already an established number of games that tip the odds in the favour of the house. Again, think roulette, blackjack, craps and slots. For the trader, this isn’t so easy. It can take a long time and a lot of experimentation to find techniques that work. But the important thing here is that you need to make sure that when you start getting together a collection of techniques you make sure that they are repeatable. That’s to say, you’re not just going on gut instinct. Your trigger to enter a trade needs to ideally be based on a set of rules, or at least a consistent methodology that has statistically been proven to work, and that you are able to recognise and initiate again in future. This is important because it will give you the confidence to keep on trading even during losing streaks.

Think of the casino again. They have very set and defined games that they allow people to play. The casino will know exactly what the odds of them winning in each game are, and from this they will be able to predict what their monthly/annual profits will be. When many people start out trading, they are like a casino that doesn’t have any set games but that just allows people to come in and make bets without knowing what, if any, the house’s edge is. Some they’ll win, some they’ll lose. Sometimes they might have a lucky winning streak, but then the next week go and lose it all again, and more. This is not a way to operate a business – it’s gambling. It is in fact exactly what the gamblers who go to the casinos do (except that, if they had the inclination, they could employ risk management rules, go on a daily basis, and work out pretty much exactly how much they’d lose over any given year).

So – you need to fill your trading arsenal with techniques that have a consistent and repeatable edge. This means you’ll need to do a lot of research, gain a lot of knowledge, do a lot of backtesting, and also ideally have tested every one of your techniques in real time, ideally in a dummy account over a large enough number of trades to allow for the probability of the technique to play itself out. I know what you’re thinking – this will take a lot of work. But no-one said trading was easy – there are no short cuts. However, put in the hours and there’s no reason you can’t have your very own Caesar’s Palace.

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