Run The Business Like A Casino Essay

percent of the total fund. You are limiting your total losses to 10 percent of each trade with this system. If you continued along with these position sizes (100 per- cent of the account with ten trades total), you would have to lose over 100 trades in a row to zero out your account (this does not include the trading costs).

The use of stop losses is a form of defensive risk management. An offensive- orientated risk-management technique is to program your trading platform to automatically sell your positions at a predetermined profit point. This will lock in your gain and help you to plan ahead how much you would like to make from each trade. For example, you could program your trading platform to automatically sell a security at a price that is 10 percent

Run the Business Like a Casino

Here is some food for thought: if you believe that the markets are completely random, are volatile, and are affected by many, many factors, you could make it your trading philosophy to run your day trading business like a casino. Casinos make money by providing gambling where the house plays the odds. If a game ta- ble has a 2:3 odds, the gambler will win twice for every time the house wins three times. If you think of yourself as the “house” and if you believe that the markets are totally random and a game of chance (which some do), you could set all of your trade stops to any odds you would like. If you wanted 2:3 odds, you would set your stops to a ratio of 2:3 with the higher being the take-profit order.

For example, you could buy QQQQ at $50, set your stop loss at 4 percent be- hind the entry price and your take profit at 6 percent above the entry price (2:3 ra- tio). If the market was totally random, you would make an automatic 2 percent on every trade (lose 4 percent gain 6 percent equals 2 percent net gain.) In order to