Are You Gambling or Trading?

In November, I released a short video on gambling vs. trading. You can play it here. I’d like to make some comments on this topic because it is a key concept for the day-trader.

Many outside of the trader world, like your friends and family, might assume that trading is gambling. That they are one-in- the-same. And, that you are likely to loose your money participating in trading. (And, statistically you are! 90% of traders loose money, but that is a different topic for later!)

WHAT IS THE DIFFERENCE BETWEEN TRADING AND GAMBLING?

In theory, trading is not gambling. Trading involves calculated, known, pre-determined risks, which if you follow, usually results in making money over time–provided you have a solid plan, you follow it, and update it as needed.

The problem, of course, is that most traders don’t have a plan. And, if they do, it isn’t in writing, or clear, proven to work, or up to date. For the rarer trader who has the complete plan, they often are not following it.

It’s not because they don’t want to or try to follow it. Sometimes they can’t follow it. Fear and greed take over (or other emotions) and impulsive actions follow.

The plan goes out the window. Now, the trader is out of control to one extent or another. Chasing trades, doubling down, ignoring stops, and other dangerous behavior may set it. This likely is gambling.

If you have no plan, are not following your plan, or don’t have the ability to follow your plan, you are likely gambling. So, ask yourself, Am I gambling or trading? It is a key question.

Casinos have a plan for each of their games. They even publish their plan (rules of the game)! And, they make a lot of money following their plan.

If you had a day-trading plan, and it was solid, you could make money, too. For the same reason that casinos make so much money. They follow their plan! The only difference between casino plans and yours. . . is, you guessed it, you don’t have one, or don’t follow it.

WHAT TO DO?

If you are gambling, even a little bit, I suggest you stop trading and get assistance. I know this is not what you want to hear. This situation does not usually fix itself. And, as many of you know, it only takes one bad or disastrous day to potentially wipe out your account.

The tendency is to think we can use willpower, or a “fresh start” on Monday, or a new strategy, or more charts, or a different timeframe, etc. to solve this problem. I have seen many traders try. I’ve even tried myself!

But it doesn’t. It doesn’t usually right itself until we face the underlying cause.

The study of trading and the path to success has more to do with you and your internal mindset than study of charts, strategies, markets, etc. This is your psychology, your mindset, your beliefs, your history of experiences and how you are affected by these aspects.

So, in my experience the key to overcoming gambling behavior is learning to trade in a way where you can trust yourself–each trade on every day. This results when you have faced and dealt with your inner challenges.

At this point, when you have accomplished that, trading may even feel boring and routine. In the meantime, if this describes you, I may be able to help. Consider scheduling a consultation with me.


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