FX TRADING STRATEGY
PLAY THE PROBABILITIES THROUGH THE TRADING DAY
A solid trading framework based on the timeless principles of game theory and the importance of the 24-hour nature of FX
What is it with all these fancy casinos from Las Vegas in the U.S. to Macau in the Far East? One is bigger and more impressive than the other as you take in the awesome view driving down the Strip or set foot in Macau after getting off the ferry from Hong Kong. Well, the secret to their success is their edge. The casinos know that they have a statistical edge, which over time will bring them riches. The vast majority of players lose, and the longer they play, the more the casinos win. That is why they are always happy to spin the wheel, deal you a new hand or let you roll the dice. In this article we
36 FX TRADER MAGAZINE April - June 2013
look at the way casinos operate and how we can structure our trading day to only play when the probabilities are heavily stacked in our favour.
UNDERSTANDING PROBABILITIES
In the April 2012 issue of the Atlantic Magazine we read about Don Johnson and how he took home a total of $15 million playing blackjack.
It seems impossible,
right? Well, Don states in the article that he did not just walk into any casino and start playing like most folks do. He won all that money by
understanding the probabilities and by negotiating the terms of the game. The house already has a significant advantage over the average player but a high roller can negotiate the “loss rebate”, meaning that on a $100,000 loss he could get away with paying the casino $90,000 or as in Don’s case, only $80,000. After the terms had been agreed the house edge was just a fraction better than 50 percent but with the discount on any loss, Don was in fact only risking 80 cents on the dollar. That is a great edge and on the hands when the odds were tilted in his favour he pressed his luck for all he was worth.
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