There has always been a lot of analogies between gambling and trading probably because to the layman they both look like the same thing. Have you ever wondered why there are so few professional gamblers? I mean, what could be easier than playing cards or shooting dice for a living? It certainly beats what most people have to do to make a buck. So why aren't there more professional gamblers out there? I have a feeling it's probably for the same reason there aren't more professional traders.

The biggest reason is that gambling is a negative expectation proposition. We all know that the House has the edge (up to 40% in some games!) so the longer you play, the greater the likelihood that you will lose your money. Sounds a bit like trading, doesn't it? After all, statistics tell us that 90% of traders will fail. How's that for negative expectation? The House edge pales by comparison.

So what's a trader/gambler to do? How do you swing the odds in your favor? Somebody cue up Kenny Rogers' Gambler song.

The answer to our problem lies in the lyrics "you gotta know when to walk away, know when to run".

This is as true for gaming as it is for trading. Knowing when to walk away means knowing when to take your profits. Almost every gambler will be "up" at sometime or another during the night. I recently shared a story about my wife and daughter in Vegas, who were up a lot of money but didn't have the sense to take their money and leave the table. They could have tried their luck agin the next day, but instead they chose to stay and play until they were bust. Sound familiar?

How many times have you been in a trade with a modest profit, yet decided to continue with the position until the trade ultimately turned against you taking you out for a loss? Too many times I bet.

So what do you do? You should do the same thing that my wife and daughter should have done: take the profit when you have it! Setting a modest profit target will go a long way to improving your "odds" in the trading game, and ultimately your profit. And after all, profit is what this game is all about, isn't it?

Don't think it adds up? Have you ever heard of "arb trading"? Arb traders are floor traders who trade for fractions of a point. This is something those of us off the floor can't do, but it is extremely profitable for them. Why? Because they are trading such small amounts they are almost guaranteed a profit (there's more to it than that, but that's the gist of it). Mind you they trade multiple contracts to make it worth their while (that's the other key), but the fact remains that all those small winners do add up.

Think of it this way, when you take the small wins, you become the House. You gain the edge. Think about that the next time you're reluctant to take your "small" profit.

Erich