I recently re-listened to one of my favourite episodes of Michael Covel's Trend Following podcast featuring former member of the MIT Blackjack team, Mike Aponte. In my opinion, all of Covel's podcast are a tremendous resource, but this episode in particular is pure gold.
Here is a quote from the interview:
As far as the betting, most gamblers will just bet based on a lucky feeling or even worse when they've lost... they're chasing their losses, which I'm sure happens in trading all the time... Whereas what we did as professional card counters, we bet bigger when we have a real advantage; we know with 100% certainty that we have an edge. Of course that doesn't guarantee we're going to win that hand, but if we just repeat getting that betting volume, maximize that betting volume with an advantage, then that's when we're going to reap the profits.
I think that's trading in a nutshell. Trend followers know that any given trade is never a guarantee, which is why risk management and position sizing are key, but given that there is an edge, they do reap profits in the long run over the course of many small bets.
Mark Douglas, author of Trading in the Zone, also realized this when he said:
Why do casinos make consistent money on an event that has a random outcome? Because they know that over a series of events, the odds are in their favor. They also know that to realize the benefits of the favorable odds, they have to participate in every event.
Mike Aponte also noted:
When you've truly mastered card counting, you're not really making any decisions; the cards make all of the decisions for you and I'm sure that's similar in trading too.
Similarly, when you truly master trading, you're not making any decisions since the price action will be making the decisions for you.
