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Are You Trading Or Are You Gambling?
The Answer, Of Course, Is "Yes"!
My Webster's dictionary's defines "gamble" thusly: "(vt) to take a risk in order to gain
some advantage," and, "(n)
an act or undertaking involving risk of a loss."
By these definitions, if you are a trader you are a gambler. The
more important question is, then, are you a WINNING gambler (day trader, trader, investor . . .) or a
LOSING gambler (day trader, trader, investor . . .)? In one of my recent articles,
I referred to an undisciplined, haphazard trader as being neither a trader nor an investor, but
"simply a gambler."
What I should have called such a person, rather than "simply a gambler", was "simply an incompetent gambler
(or incompetent trader or incompetent investor)."
So, what is the difference between a winning gambler (day trader, trader, investor . . .) and a
losing gambler (day trader, trader, investor . . .)? Who is the most successful gambler in a casino?
The house, of course. This is because the house
has the odds on every game slightly in their favor, they keep their bets small (even a very large bet for
an
individual is very small for the casino in relation to the size of their total pot), and
they play absolutely without emotion.
The house knows that over x number of bets, if they have an edge in the odds of just a small percentage,
where x is a very
large number, they will come out ahead by a steady and predictable amount. The casino is a
consistently winning gambler.
So, what do you as a trader have to do to be a consistently winning trader?
Recognize that you are gambling, and play like the winning gamblers play. Whether you are investing in stock,
day trading futures or forex, or trading longer time frames, your investment or trading strategy must have the
same key elements that winning gamblers have in their systems.
Your trading system, whether a
day trading system or
a system for multiple day trades, or your long term investment
strategy, should have the same advantages as the casino owners: Your trading signals combined with your trade
management should tilt the risk slightly in your favor, you should keep your total capital commitment on each
trade very small in relation to your total capital, and you should trade entirely without emotion.
In order to provide these key elements, your trading system, whether you create it yourself
or buy a system "off the shelf", must have the following characteristics: It must give you clear, objective
entry and exit rules; it must give you an overall advantage over the market INCLUDING allowing for slippage
and commissions; and it must be a system that fits your personality such that you can operate it
without emotion.
If your
day trading system, swing trading system, or long term investment strategy does not provide these three key
elements, then you will be a losing trader and an unsuccessful investor. If your system gives you clear entry and exit
criteria, shifts the odds slightly in your favor, and allows you to trade objectively and without emotion, then you cannot fail.
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For rational and objective
information about trading and investing to secure your retirement,
visit the rest of our site and take advantage of all the
trading education resources you will find there.
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