I was sent this video by a guy who trades directionally. He says that this video done by Adam Khoo statistically proves that day trading works and the video is called “Trade Like a Casino”. So I’ m going to do a review on this video. sSo let’s have a look.
(Audio from Trade Like a Casino)
Adam Khoo: Hi, I’ m Adam Khoo and today I’m going to show you how I really make money consistently as a professional trader. And I’m here to tell you the honest truth and the honest truth is that trading is gambling, absolutely! Stock market is a giant casino. It’s a legal casino so let me ask you this? In gambling who always makes money in the end? The answer is the casino always makes money in the end right. I’ m sure you’ve heard this phrase that the house always wins.
Now, how do they do that? How can a casino ensure that in a game of chance, they always make money and I’ m here to share with you the secrets of the casinos and to show you how, as a professional trader, I set myself up as the casino. And that’s how I always make money in the end. So how do…”
(End Audio from Trade Like a Casino)
So setting himself up as the casino. So he obviously has an edge. Let’s see what that is.
(Audio from Trade Like a Casino)
Adam Khoo: Well, what they do is they rig the games in such a way that they have a statistical edge over the market, or they have got a positive expectancy while the player has a negative expectancy.
So here’s how it works. Let’s take a typical game called Roulette. So in Roulette what happens is you’ve got a giant wheel, right, and this wheel is made of numbers and you’ve got this spinning device, right. When you throw the ball and the ball will spin, you’ll land on one of the numbers and what you can do is you can bet which number you land on. Will it land on an odd or even number; a black or red number, okay? So, a common bet would be to bet on black or red.
So for example, this is a red number. It’s a black number. It’s another red number. And so on and so forth. Okay, now here’s the thing, many people think that if they make a bet with the casino, they’ve got a 50/50 chance of being right. Well, they’re wrong. iIt’s not a 50/50 chance because the casino has rigged the game in such a way that they are all together, 18 red numbers. 18 black numbers. but they are 2 green numbers which are the zero and the double zero, these are green.
Okay, there in lines their secret. So this is what happens. For example, if you bet on black what’s your chance of being right? Your chance is 18, because there are 18 black numbers out of, not 36, 38, right? Because they’re 18 black, 18 red, and 2 green numbers. So and the casino’s chance of winning is 20 out of 38 because if the ball lands on the green, the casino wins as well, okay. So if you work it out, the player’s chance of making money is about 47.3%. The casino’s edge is 52.7%. So what is the casino’s h over the player? The casino’s h is 52.7% – 47.3%. That’s 5.4%.
For example, if you got a thousand bets and each bet is a thousand dollars, a million is bad, right? A million dollars, bad, right? Great and statistically out of a thousand beds, the casino is going to win 52.7%, the player is going to win 47.3%, right? So that means the casino will win 527 bets and lose 473 bets, right?
Now, each time they bet, they win a thousand, they lose, they lose a thousand, right? So this is a thousand dollars. So they make 527,000, they lose 473,000. All right, so this minus this is you got it 54,000.
(End Audio from Trade Like a Casino)
Karl Domm: Okay so this all does make sense to me, so far.
(Audio from Trade Like a Casino)
Adam Khoo: That’s how it works. So now I’ m going to teach you, as professional traders, how do we replicate the business model of the casinos? So to most people when they when they buy a stock. What’s the chance of them being right 50/50, right? It’s random. It either goes up or it goes down.
Now, as professional traders we always make money at the end of the day. How do we do that? We replicate the business model of the casino… So I explained how the casinos rigged the game in order to have a statistical edge over the player, right? Now, I’m going to teach you how as professional traders we rig the games. We rig the stock market legally of course, right.
So like I mentioned most players when they buy or they sell a stock it’s a 50/50 chance. I either goes up or goes down. But as professional traders, what we do is we study the markets. We look for repeatable price action patterns or we call it technical analysis. And by applying these price action patterns that are repeat…
(End Audio from Trade Like a Casino)
Karl Domm: I guess he’s saying based on technical analysis that he can predict the future, that’s what I’m gathering here.
(Audio from Trade Like a Casino)
Adam Khoo: We are able to enter when the statistical edge is in our favor because on an uptrend, when the price hits a support level after a retracement, there’s a high probability that is going to go up.
(End Audio from Trade Like a Casino)
Karl Domm: I wonder what that probability is. Does he know that?
(Audio from Trade Like a Casino)
Adam Khoo: Is it a guarantee? Is it 100% is going to go up? Of course not right. It could still go down but when you enter at these repeatable price patterns, the chance of it going up is more than 50/50. It’s not 100% but let’s take it as a 60% chance it’s gonna go up.
Okay, or even 55% whatever it is, right. Of course, there’ll be a 40% when it fails and the trend reverses into a downtrend.
(End Audio from Trade Like a Casino)
Karl Domm: That stock can go down and hit your loss, but that doesn’t mean that the whole
trend changed. It just means that it retraced a little bit further than normal.
(Audio from Trade Like a Casino)
Adam Khoo: Okay, so say 40% you lose and 60% you win, okay. What’s your edge? Your edge is you win 60% you lose 40%. Your statistical edge is 20% that’s better than casino. The casinos edge…
(End Audio from Trade Like a Casino)
Karl Domm: I really don’t think he can pick a direction and fuse the direction of a stock 60% of the time. Well, let’s just say that he can.
(Audio from Trade Like a Casino)
Adam Khoo: …5.4% and they make billions or hundreds of millions, whatever it is right. But as a professional trader, your edge can be 20%. Now, even if you are right only 55% of the time some people say that’s no big deal but and you are wrong 45% of the time. Hey, that’s still a 10% edge. So being a professional trader is better than owning a casino, if you think about it that way.
Now, here’s the other best part. As a casino, when you bet with the players you’re betting one for one, right? If you lose, you lose a hundred dollars. If you make, you make a hundred dollars. But in professional trading we never bet one for one. We always bet at least one for two. In other words, we always risk one to make two dollars or more. How do we make this happen? By placing a stop-loss to guarantee how much we’re gonna lose, and a profit target to guarantee how much we’re gonna win when we’re right.
So let me draw this again. Now, in this case let me show another example. In this example, the market is going sideways. Usually when the market goes sideways it’s in a range like that; it’s in a range, right? So hits on resistance, support, resistance. So you have to see this repeatable price pattern. It doesn’t happen for every stock. It doesn’t happen every day but when you see it, you can trade it. We only trade when…
(End Audio from Trade Like a Casino)
Karl Domm: Wait when you see that pattern, that’s what happened in the past. It could have an uptrend or downtrend. After that, how do you know it’s going to continue what happened in the past? But let’s just give him the benefit of the doubt.
(Audio from Trade Like a Casino)
Adam Khoo: We see a repeatable price pattern, right? So for example, say this is 10 bucks and this is 15 bucks, right? So the price hits this support level and what do you, what do you think is going to happen, right? There is going to go up there, right? So we’re going to buy here, again, is it a guarantee is going to go up? No, it’s just a probability. It’s better than 50/50 chance, right?
But based on its repeatable price…
(End Audio from Trade Like a Casino)
Karl Domm: Actually, in my personal opinion, I don’t think it’s better than a 50/50 chance; but again, we’ll give him the benefit of the doubt.
(Audio from Trade Like a Casino)
Adam Khoo: …vice patterns, say the chance of it going up is 60% chance. And the chance that after I buy it dies, it’s a 40% chance. Win. Lose. Now, here’s the difference. So say I buy it at $11, what do I do? I have to place, what I call a stop loss order, a stop loss. That says hey if it goes to $9 sell it immediately. I cut my losses…
(End Audio from Trade Like a Casino)
Karl Domm: What if you’re holding that stock overnight and it gaps down to $8? You weren’t able to cut your losses and that is one of the possibilities that you need to consider when you’re thinking about trading like this.
(Audio from Trade Like a Casino)
Adam Khoo: …right? So if you do that, how much will you lose when you’re wrong? You will lose $2. So by placing a stop loss you guarantee how much you are gonna lose. When you, when you’re wrong, all right, and you just have to make sure that the distance from your entry price you’re buying $11 to the top of the range, say this is $15, right? So if it goes from $11 to $15 how much you make you make? $4 so you’re risking $2 to make $4, or another way of saying it is, you’re risking one to make two.
You’re risking one to make two with a 60% win rate.
(End Audio from Trade Like a Casino)
Karl Domm: Okay, right there. First of all, if you’re risking one, or let’s just say you’re risking $2, you’re telling me there’s a 60% chance they’re going to make $4, and there’s a 40% chance you’re just gonna lose $2.
I’m gonna go over some probabilities right now because what options do is not only did they
provide an edge if you sell options, but also you can use the Deltas to predict probabilities, the real probabilities. Not the 60/40 stuff that he’s talking about. It’s 50/50. You got a 50% chance going up 50% chance going down.
Now, because the market rises over time, it might be slightly bullish but it’s close to 50/50. But let’s take a look at an options chain where the real probabilities are. So for example, here we have XLF, and we have it’s trading around $37.78, around 38 dollars. So if you look at the $38 here’s the strike call, the Delta is around 49 close to 50. And the $38 put, the Delta is at 51, -51.
So if you had a Delta at 50, that means it pretty much has a 50/50 chance of going up or down. So if we were to go down, let’s say he was talking about a $15 stocks, let’s say you’re gonna go up $6 and take profit, or you’re gonna go down $3 and take a loss. So if you went down $3, that would be one two three statistical probability of that is 25%. So 25% of the time you’re gonna take a loss.
Let’s see how the probabilities are of going up $6; one, two, three, four, five, six statistical probability there is 7%. Now these probabilities are based on what is going to happen at expiration or in 104 days from now. So which one is going to happen more often are you going to go up $6, which is 7% of the time, or are you going to go down $3, which happens 25% of the time?
So you can see, if you’re not shooting for a one for one, then the statistical probabilities change no matter what the charts look like.
(Audio from Trade Like a Casino)
Adam Khoo: And that’s how you rig the game of the stock market. Now if you do this consistently, in other words, out of, for example, a hundred trades, now I do about 20 trades a month on average. So it takes me about five months to do a hundred trades, okay. Of a hundred trades, again, my win rate is say 60% win rate.
So I’ m gonna win 60 trades. I’ m gonna lose 40 trades, okay. Now, each time I lose, I lose a dollar, right or whatever I’m willing to invest or trade? When I win, I win at least $2, right? Why? Because like I mentioned, we fixed our stop loss and our profit target and…
(End Audio from Trade Like a Casino)
Karl Domm: Okay, that’s not why that’s not a good reason. His reasoning right here of why he wins 60% of the time and makes 2x and loses 40% of the time and only loses 1x. And then he says why and this is his reason this is not a good reason.
(Audio from Trade Like a Casino)
Adam Khoo: We only take the trade if we have a risk to return ratio of at least one to two. So what happens?
(End Audio from Trade Like a Casino)
Karl Domm: So the reason is because he only takes the trade if the risk reward is one to two. That doesn’t mean that he’s going to get a 60% win rate on the two and only a 40% loss rate on the one. Those don’t correlate.
(Audio from Trade Like a Casino)
Adam Khoo: Now, okay so, I lose $40…
(End Audio from Trade Like a Casino)
Karl Domm: What’s really gonna happen here actually is you’re gonna lose that $1 about 66% of the time, and you’re gonna make the $2 about 33% of the time. And if you run the numbers like that here’s what they are.
So if you look at it it’s 33 times 2 equals 66. And 66 times 1 equals 66. Which means you’re going to make $66 on your wins and you’re going to lose $66 on your losses. sSo out of every 132 trades you’re gonna break even.
(Audio from Trade Like a Casino)
Adam Khoo: …make $120 so you do the math.
(End Audio from Trade Like a Casino)
Karl Domm: I just did the math and it’s not the same as his numbers. You actually break even.
(Audio from Trade Like a Casino)
Adam Khoo: What’s 120 minus 40, 80 bucks. So I know that, you see, whenever I make a trade I’ve got no idea whether it’s a win or loss. In a short term, I may have a loser…
(End Audio from Trade Like a Casino)
Karl Domm: That is true. He doesn’t have any idea whether it’s going to win or lose, but he should know that when he’s trying to win twice as much and he’s and as he’s gonna lose that his statistical odds are much much lower about 33% of the time.
(Audio from Trade Like a Casino)
Adam Khoo: …I mean I may have a winning streak that’s called luck, okay. But over many trades of at least a hundred trades, for example, I know I always win because of the statistics being in my favor. I’ll make $80, in other words, if I’m betting a dollar for trade and I’m betting $100 I’m getting $80 back.
That’s an 80% return, okay. In 100 trades, about five months, okay. Now, of course there’s no guarantee…
(End Audio from Trade Like a Casino)
Karl Domm: I would love to see his P&L where it shows that he’s making 80% return every five months trading stocks. That’s like making 220%, approximately somewhere around there. In other words, he’ll start with $100,000 and then by the end of the year he’ll have $300,000. He’ll have 2x his amount of money.
If it was really that simple everybody would do it.
(Audio from Trade Like a Casino)
Adam Khoo: That you’re going to win 60%. Now, what if the worst case scenario happens and you gotta say you get a string of bad luck, right? And your win rate only goes down to 50%…
(End Audio from Trade Like a Casino)
Karl Domm: Okay, that would not be a string of bad luck if your win rate was 50% and you were betting one to make two. That would be an absolute luck streak. Well, let’s see what the statistics would be if you had this super hot lucky streak.
(Audio from Trade Like a Casino)
Adam Khoo: If your win rate goes down to 50%, it means that of a hundred trades, you win 50, you lose 50, right? But, because of the risk to return ratio the way we rig the market, guess what…
(End Audio from Trade Like a Casino)
Karl Domm: Just because you take a loss at 1x and take a gain at 2x does not mean you’re rigging the market, because it doesn’t rig the market, because that doesn’t work, that is not the secret to trading. Unfortunately, the statistics will play out and you’re not going to get a 50% win rate when you do this. I don’t–does he know this?
I think he knows this. He has to know this. Either that or he that doesn’t really trade with real money.
(Audio from Trade Like a Casino)
Adam Khoo: We are losing $50 but we are winning double. We are winning $100. So net net I still make $50 out of $100. It’s still 50%.
So that my friend, is the essence of how professional traders we rig the stock market so we always make money consistently at the end of the day and that’s how we grow our income and our wealth. I hope you enjoy.
(End Audio from Trade Like a Casino)
Karl Domm: Okay, that’s just crazy. Crazy talk. Obviously, he doesn’t trade like that because if he did trade like that, he would know right away that the statistics would shut him down and he would be breaking even. But all I have to say is I hope you don’t try to trade like this but if you do, let me know how it all turns out for you. I’d be interested.
If you’re interested, I created a free proprietary options trading course and I put a link in the description below. And hey, don’t forget to hit that like button on the way out. thank you.
LINKS MENTIONED:
Link to my FREE Proprietary Course
