When you tell people you desire to learn about day trading, don’t be surprised if they refer to it as gambling. Some outsiders see it as such because of the terminology; a winning trade vs. a losing trade.
Is day trading gambling? The short answer is no.
Do some day traders gamble? Yes.
Does a successful day trader gamble? Absolutely not!
Before we dive into those topics, let’s unpack what gambling actually is since there is a fine line between gambling and trading in the financial markets.
When you go to the casino, your odds of losing money are significantly higher than a trader that knows how the market works, applies strategies, and has a risk management plan.
Maybe it is the carefree atmosphere of a Las Vegas casino, the alcohol one may consume, or the act of being on vacation that encourages a person to keep putting money in a slot machine or playing the tables.
For some, going to casinos, phone or internet bets, and wagering with friends, can be a source of occasional entertainment and for others, it can be a gambling addiction.
There are serious differences between a person who gambles, a problematic gambler, and an individual who has a gambling addiction. Day traders, swing traders, investors, and anyone who invests in financial instruments should be aware of these traits.
A person who gambles knows their risk, is aware of their odds, and sets limits for losing the money they value. They are “healthy” people who can walk away whether losing or winning.
A problematic gambler knows their risk, and is aware of their odds, but cannot refrain from attempting to beat the odds occasionally even after losing money. They gamble but not to the point of disrupting their life.
Gambling addiction is an impulse-control disorder. A gambling addict is aware of the negative consequences but will continue to play at the expense of their relationships, finances, and emotional well-being. Compulsive gamblers put gambling activities at the top of their to-do list. The urge to gamble seems uncontrollable and they dream about the next win thriving on the emotional highs and reacting to the emotional lows. It is destructive behavior.
Is Day Trading Gambling? NO
Both trading and gambling carry risk. So, it is easy to connect the two activities to an extent but here is the real difference…
Trading applies education-based winning placing odds in your favor.
Gambling applies luck-based winning placing odds against you.
Trading: Education Based Winning
Education, planning, strategy, practice, and applying knowledge and proper risk management when investing is the key to day trading. The strategies of successful day traders place the odds in their favor over a series of trades which puts them at an advantage.
Good traders are well informed before risking their money. They do not trade with emotion and execute trades on any given trading day based on their calculated process to enter and exit the market as planned. They are firm in their criteria and unaffected by their results.
Gambling: Luck Based Winning
Gamblers may know the game they are playing but unlike the trader, a gambling bet is based more on emotional impulse and lucky circumstances.
The likelihood of consistent profit while gambling isn’t plausible. Over a series of plays, the gambler will find themselves losing more money than making money. When you place a wager as a gambler, you know you will most likely lose but you hope you will win despite the odds being stacked against you.
A business, such as a casino, profits from more people consistently losing than the occasional winning after long periods of play. They know it is a numbers game. This fact alone puts a gambler at a disadvantage.
Do Some Day Traders Gamble? YES
If you used a certified financial planner to trade the stock market for you, and handle your investments, would you classify them as a gambler? Probably not. After all, they are educated financial professionals who are certified or even employed with an investment firm. Even though they are capable of losing their clients’ money, they are not perceived as irresponsible investors or gamblers.
What is the difference between a certified financial planner and individual investors? The application of knowledge, education, planning, experience, and being disciplined to follow it is the distinction. Ironically, this is also the contrast between traders that invest properly and traders who gamble.
Traders that gamble ignores their strategic plans removing their advantage. They trade with emotions. This may entail having disregard for set entry criteria and getting into a trade based on FOMO (fear of missing out). It could mean negating a stop loss and staying in a losing trade hoping for a retracement and profit. This is a gambling mindset, a way of thinking that needs to be avoided.
When a trader applies a gambling mentality, they will ultimately lose more money day trading. Gambling takes away a trader’s winning edge and puts them at a disadvantage.
Does a Successful Day Trader Gamble? ABSOLUTELY NOT
It is important to note that taking an educated financial risk is very different than betting on a feeling or mostly luck. Winning with set strategies and applied education provides clear, profitable advantages over winning occasionally based upon lucky payouts.
Successful day trading requires the ability to learn market data, the desire to take courses and get educated, know when coaching or mentoring is needed, and backtest strategies and practice. Many day traders journal their trades, analyze their wins and losses regularly, and use technical indicators and market analysis to confirm their decisions to enter the risk.
Professional traders exercise discipline! More importantly, successful traders do not gamble. They adhere to their trading plans, they remove emotion, and they apply control over all aspects of their work.
Summary: Is Day Trading Gambling?
Gambling stimulates our brain’s reward system much as compulsive shopping or gaming can. Most people feel good at that moment, extremely happy, and some even feel euphoric! This kind of behavior and attitude can also translate into the habits of individuals that day trade if they allow it.
To avoid a gambler mindset, a trader needs to take time to learn about the stock market, market data, candlestick patterns, and trading strategies. They need to be strict with their trading criteria and be extremely disciplined mentally and emotionally. Gaining that kind of investing know-how, and emotional control would equate to possible success in day trading the markets.
The market provides a vast opportunity for profit every single day. Just be smart and do your homework. Don’t bet on it and pay the price.
Resources to Check Out
National Problem Gambling Helpline Network: 1-800-522-4700
Book: The Disciplined Trader by Mark Douglas
YouTube: 6 Keys to Win More Day Trades by Maurice Kenny
Looking to learn?
Maurice Kenny has helped over 600 people become financially free through one-on-one coaching, mentorship, and options trading strategy. Many of these new traders are now full-time traders, and they all started by watching his 1-hr webinar.
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