On... My Business Model

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 Last post, I wrote that trading should be done like you're running a business. If so, what kind of business would I be running? 

The business model that I best want to replicate is a casino business (see this video, if you want to skip the rest of the blog post ). Most people that I talk to, thinks that investing or trading is a form of gambling. Is trading or investing really gambling? This topic is rather divisive and it depends on who you ask. Well if it truly is gambling, I would want to play the part of the casino, because as they say, the house always wins. 

How does the casino make money? By having a positive expectancy.  They don't have to make money on every bet, but over large number of bets, the profit has to be bigger than the loss. In terms of trading, my winning percentage is not really that great but as long as the average winners are bigger than the average losers, that is good enough. Year to date for 2021 (over 133 number of trades), my winning percentage is only 56%, but my average win/loss ratio of 2.16 is good enough to give me positive expectancy. 

Notice that the casino also incentivize gamblers to stay and gamble as much as possible. That's because having an edge is not good enough if the number of bets is small. Over a small number of bets, the true probability does not surface. Take a coin flip for example. Although the probability of flipping heads is 50%, if you only do 5 flips, you could actually end up with 5 heads/tails in a row. Therefore when I trade, whenever my signal for entering a trade is activated, I should take the trade. The more trades the better in theory, if I truly have an edge. 

It's not easy to make money trading. If you want to make money, then you have to treat it as a business and what better business model that a casino? 

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