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Here is a stock market game that Danny Merkel @ChartingTrends shared on Twitter this year. 

This is a card game that simulates the importance of position size and trading through sequences of wins and losses.

All you need is a deck of cards. 

You will use all of the twelve face cards, two jokers, three of the 2 numbered cards, two of the 3 numbered cards, and one each of the 4, 5, and 9 numbered cards for a total of twenty two cards to be used in the game. 

Players will then decide how much they want to bet on each card drawn from the deck of cards remaining in the game. For example if you start to play with an imaginary $100 in your simulated trading account you can bet $1 for 1% of your capital, $2 for 2% of your capital, etc. This is a quick and easy way to understand the importance of position sizing and stop losses in trading. 

The card you draw from the deck determines the outcome of your imaginary trade. 

Face cards = Lose whatever you bet. (Bet $1 lose -$1)

Joker = Lose 5x your bet. (Bet $1 lose -$5)

2 = Win double whatever you bet (Bet $1 win $2)

3 = Win triple your bet. (Bet $1 win $3)

4 = Win quadruple your bet. (Bet $1 win $4)

5 = Win 5X your bet. (Bet $1 win $5)

9 = Win 9X your bet. (Bet $1 win $9)

The Stock market game

You need to only use the cards shown in the above photo, and all of the other cards are discarded. Once a card is drawn, it should be added back to the deck and reshuffled. Like with trading, each card is unique and the past doesn’t affect the future.

There is no limit for how many people can play. Each player would bet a certain amount of chips and a dealer would draw a card from the deck. If the card is a loser, all of the chips would go to the dealer. If the card is a winner, the dealer would pay out the players.

The highest winning card in the game is a 9. Trend followers and option traders will occasionally experience 9R winners. This is what happens when they let a winner run and it’s what pays for all of the small losses. This is why it is so important to maintain a good risk/reward ratio in trading. The biggest losing trade is the joker for a five times loss of the bet. This can happen at times when a market gaps down dramatically against an open position where a stop loss can’t get a trader out fast enough. This shows why position size is so important when a market moves against you too fast and you can’t get out on a gap in price due to news or an earnings announcement. 

This trading card game is an example of a positive expectancy model. 

  • Average Win = 3.75 of risked amount.
  • Average loss = 1.5 of risked amount
  • Win rate = 8/22 = 36.36%
  • Loss rate = 14/22 = 63.63%

There is a positive expectancy with this system’s outcomes and on average you win 0.40 of amount risked per trade.

When shuffled, the entire system is profitable and has a positive expectancy, but with only 36% winning trades, if you bet too much, you will eventually go bankrupt.

Just like in trend trading with a similar low win-rate, severe losing streaks are inevitable. For example, based on a simulation of 10,000 trades with cards, it is likely that you’ll get 23 consecutive losing cards in a row at some point, which means that you’ll eventually go bankrupt if your bet size is too large. Position sizing is the key to this game just like in trading the stock market. 

This game is very similar to Van Tharp’s marble game where he teaches traders the importance of position sizing and how two traders can have very different results even with the same trade outcomes in the same sequence if one is trading too big and the other is trading with risk management as a major consideration to avoid the risk of ruin. 

Below are Danny’s original tweets explaining the game:



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