The Forex Gambling Myth


So there I was eating a bag of salt n vinegar chips on a crisp November day speaking to a trusted friend about my trading adventures on the high seas Forex Market, when he turned towards me with a face of indifference and said, “Forex is just gambling, its no different then a game of Blackjack”. With the look of horror on my face, I jumped up from my lounge chair, knocking it over, to the disdain of the coffee shop crowd who were pleasantly chatting before this ruckus broke out and exclaimed, “Forex is not like gambling and I shall prove it to you right now!”. In one fell swoop I flipped open the screen to my 3.2 Ghz 17” laptop that was in sleep mode and it instantly sprang to life displaying all my charts, grids, trades and my favorite site, the Forex Lifestyle Guide.

There are quite a few differences between a casino game and Forex. I will use the card game black jack to illustrate my point..

In order for a player to improve their odds at Blackjack, he would have to count cards, which will get you thrown out of a casino, I know I’ve tried it. At best the odds in blackjack can shift to 50.5-51.5% in favor of the player, but this is only at very specific times when the deck may be rich in 10’s and face cards, which is good for the player and bad for the dealer. The problem players face in blackjack is they have limited tools in which to manage their bad hand. The player can only hope that the dealer will bust, otherwise the probability of losing the hand is high. Unlike Forex, the blackjack player can’t wait for a new dealer, new favorable house rules or surrender a portion of his bet to buy additional time. In minutes he will be faced with making a final decision, whether to stay pat or take another card, and this choice determines the outcome. He must finish the hand, and it’s all or nothing.

While there are folks out there who trade with an all or nothing trading style, using a single precision timed entry accompanied by a 2% stop loss, I personally don’t advocate trading this way. For me, I have a different way of entering and managing a trade. I build a trade through the use of multiple entries thereby adjusting my average price in order to get the best price I can. This lessens the impact of having to perfectly time your trade.

Next, I use a stop loss that is based on the entire trade, not the entries that make up a single trade. This allows another level of flexibility. Scaling into and out of a trade. The fewer entries I have, the larger my stop loss is..and it’s a pretty large stoploss! Say 5+ % of the account. If I happen to use all my entries up, usually 5 or more, as I dollar cost average into a trade, my stop loss will be set far out side the bounds of the grid trading system where price is unlikely to go. As well, I only trade with the trend, which is another edge that greatly improves my probability of winning. As you can see, through careful planning and stacking numerous trading edges in your favor, you can vastly improve the odds of coming out a winner. The tools available to you when trading the Forex market are vast in comparison to those in Blackjack. In Blackjack the best you can swing the odds in your favor is a maximum of 51.5%. If you’re a disciplined and practiced trader like KeefB, who resides in the Forex Lifestyle Guide Chatroom, you can push the favorable probability edge 85%-90% and higher. This makes trading much less like gambling and more like a game of planning, patience, discipline and experience.

And with that, I rest my case your Honor.

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