The Odds Game

the-odds-game

Having spent time speaking with casino managers, I asked them about winning games that have a completely random outcome. I was told the same thing over and over again:

  • Define your advantage for a given game
  • Ensure a completely random outcome for the given game
  • Ensure large volumes (e.g. spins, hands)

On hearing the second statement, I was confused. In fact, I was even told that casinos invest substantial amounts of money to ensure an extremely high degree of game randomness. If predicable results ensure a predictable outcome, how can random results also ensure a predictable outcome? I was intrigued. The answer lies in your advantage. Casinos define certain rules to ensure that they have a slight advantage, perhaps 2-5%, over other players. Certainly this advantage can’t ensure a win every time and this is not what the casinos want; if the casino won every hand, no one would come back to play. They just keep playing, over and over again and, in time, such slight advantage will become evident. For a Roulette table, the 2-5% advantage becomes evident after about 5000 spins. Knowing this, all the casino has to do is keep the Roulette wheel spinning.

A poker championship had just been held at one of the casinos I visited. I asked the manager what he regarded as the most important trait a poker player must have in order to be successful. His answer came very quickly: bank-roll. If a player in unable to administer his/her bank-roll, they’ll be out in no time. Bank-roll administration means taking calculated risks each time you play a hand, defining the risk, and not getting greedy to the degree where you’re willing to risk everything on one particular hand.

You have to know how to administer your bank-roll responsibly and sit through all the losing hands which are an unavoidable part of the game if you want to win. Winning takes patience and commitment.

Interestingly, when I spoke with successful traders, I began seeing patterns emerging. Both traders and those responsible for managing and maintaining profitable casinos appeared to play by the same rules – and such rules can be applied to trading. In other words, if you implement the same rules as those mentioned above, you can ensure a similar outcome.

Defining your advantage

Defining your advantage is how you put the odds, just slightly, in your favour. This you do via your analysis of the market. There are many methods by which this can be done. With an interest in psychology, I tend to look at psychological levels in the market. This can include support and resistance, trend-lines, round numbers (00/0000, 50/5000). By being able to analyse the market successfully, even only to a slight degree, you put the odds in your favour.

Ensure a completely random outcome

This part is very easy, and the market takes care of this for you, as this is the nature of the market. Random outcomes are an inevitable part of market. Wars, political statements, and natural catastrophes all may have a direct or indirect effect on a given country’s economical stability and thus its currency. If you can be certain of one thing about the market, its it’s completely random nature.

Ensure large volumes

In the same way the casinos need to keep the Roulette wheels spinning in order to ensure their profits, the trader needs to be entering trades each time their advantage is validated. If this is not happening then the odds may not be realised due an insufficient trade sample size. This statement is worth mentioning again: each time your advantage validates a trade, it should be entered without hesitation.