In today’s episode, we are going to be discussing the characteristics of gambling traders versus the characteristics of professional traders with the goal of helping you identify if you are trading or gambling!
This episode is not ABOUT you, it is for you! The discussion that we will have is meant to help raise your awareness of patterns that might be holding you back from achieving the success that YOU deserve!
Many people believe that trading the stock market is a form of gambling. Think about this and ask yourself what your opinion of this is?
Have you ever thought trading is gambling? If so, where did this belief come from?
We hear it all the time, “The stock market is nothing but a gamble” – “Trading is as good as going to the casino and betting all in on red” – “Day trading is gambling”
For many who trade the market, gambling is exactly what they are doing – but is it correct to say that trading IS gambling? Before we can differentiate between the gambling trader and the pro, it’s important that we dispel this myth that trading is gambling!
What is gambling? Wagering money on an unexpected outcome with the intent of winning money
If you take this definition literally, then you might consider trading to be gambling but consider this; everything in life is a gamble if we define it by taking a calculated risk in everything we do, and we do that 100s of times per day without realizing it.
Getting out of bed in the morning and going to the office, there is a chance that you get hit by a bus; that’s a gamble, isn’t it? Same with going out for dinner! The chicken might have salmonella which can get you sick. That’s a gamble too right?
In our opinion Trading is NOT gambling:
- Why? You have a sense of control
- The sense of control has nothing to do with the actual outcome (which is why people consider it gambling)
- One important difference between day trading and going to the casino is that when you go out to gamble, you have a negative expected return because the house has the edge.
- In trading, you can replicate the edge that the house has by controlling your risk and by controlling your trade management.
- A majority of people that come into this industry treat the markets like a casino with a gambling mindset because of unfit expectations that they can make money overnight, get riches, quit their job, and buy their dream car.
- This is why the majority of traders, over 90%, are consistently losing money! Because they have unfit expectations and they do not have any structure.
- Successful trading is about consistency! Especially as it relates to trade and money management.
- It allows you to determine positive expectancy
Now that we’ve dispelled that myth, let discuss some of the main characteristics of a gambling trader!
Many people who call themselves “traders” are operating in a gambling mindset and these are some of the main characteristics to distinguish the approach between a gambler and a professional trader:
- Wants to be in the market at all times – treats trading like an addiction
- Does not have a trading strategy and trades on emotion
- Does not treat trading like a business (no business plan in place – does not track and review trades in a journal)
- Lacks education and/or knowledge of the financial markets and trading
- Trades with money they can’t afford to lose which puts them in a state of despair
- Which leads to wild mood swings on a daily basis
When is trading NOT gambling – The Professional Traders
- Do the work and put together a business plan
- Have a clearly defined set of rules for trade and risk management
- Understand their expectancy and strike rate
- Follow their rules even when emotions take over
- Remain objective in analysis and execution
- Focus on process and how well they executed the process
We invite you to take this information and identify where you stand so that you can work on your internal operator and approach the markets with a bulletproof mindset!
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- Catch up with our earlier episodes: Mind Over Markets Podcast