The long-term outcome of gambling is loss.

Know when to hold em, know when to fold em?

Gamblers who started the habit in their teens are around three times more likely to remain habitual adult gamblers. Life in general seems to endorse gambling, with lotteries, well-know horse races, dog races; in fact some people will bet on two flies crawling up a wall, if they have a predilection to gamble. Gambling is a very broad problem and is not as clear cut as we think. It is in every walk of life.

As traders, we need to learn not to be gamblers.  Our approach when trading should be based on considered, practical and technical evaluation of our harmonic pattern trading opportunity; our position and our risk. The question to ask ourselves is, are we gambling instead of trading? Do we need to get immediate results from trading, or are we content to let a trade ride and be able to accept a small loss or appreciate a good winner.

If traders gamble, they consider jumping into a trade around news, trying to capitalize on which way the market might head.  Some traders take what’s known as OCO trades (one cancels the other) which simply means they will put two trades on the same pair, one short, the other long. They are gambling and thinking they have a 50-50 chance of being right (or wrong).

• The difficulty with this gamble is the stop placement and the risk involved and the fact that price may not continue the way they think it should.  For instance a pair might go up (long) which results in the trader closing out his short position.  The pair can move up 20 – 30 pips before slamming back down again in one fell swoop, taking out the trader’s stop as it goes.  In another scenario, the broker, unable and unwilling to take a loss will sometimes hold the platform until price moves in their brokerage’s favor.
• The trader who has closed out the short trade is now forced into a losing position that can’t be closed out because the broker may have frozen the platform.  This freezing of the platform and movement of the spread by the broker, is called slippage.  Brokers often blame this slippage on their liquidity providers. It could be a combination of both companies conspiring against the poor luckless news trader.
• Risk versus reward objectives helps counter the tendency for traders to jump into a trade based on emotion. They can take a considered approach based on pure mathematical calculations.  This objective is consequently taking away the aspect of gambling on a trade and replacing it with more of a premeditated assessment of a reasonable outcome.
• Analysis and decision-making helps remove the emotional (gambling) aspect and allows traders to confine their prospective trading strategy to a 1:2 – 1:6 risk versus reward base.  Anything less than 1:2 becomes unworthy of the time to trade when the return is no more than risking one pip to gain one or one and one half pips.  Anything more than a ratio of 1:6 becomes an improbable trading scenario.
• If we find we are unable to stop trading breakouts, fake-outs, news and volatility then we know we are gambling. And we know our long-term prognosis as traders is failure. So, don’t let’s gamble on the news events or similar volatile events like Non-farm Payroll figures (NFP) out of the United States.

While we cannot predict when we’re going to take a winning trade, we can use harmonic pattern trading to give us an edge to know that 70% of the time, the PRZ will give us a measured point where price might turn. Let’s not gamble…let’s use harmonic pattern trading to give us an edge.