Are you Trading or Are you Gambling?
Are you trading or are you wagering? 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 explanations, if you are a speculator you are a gambler. The more important question is, then, are you an absolute gambler (day speculator, speculator, investor… ) or a LOSING dewapoker gambler (day speculator, speculator, investor… )? In one of my recent articles, I referred to an undisciplined, haphazard speculator as being neither a speculator nor an investor, but “simply a gambler. ” What I will have called such a person, rather than “simply a gambler”, was “simply an unskilled gambler (or unskilled speculator or unskilled investor). “
So, what is the difference between an absolute gambler (day speculator, speculator, investor… ) and a losing gambler (day speculator, speculator, investor… )? Who is the most successful gambler in a casino? The house, of course. This is because the house has the possibilities on every game slightly in their favor, they keep their gamble 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 sentiment. The house knows that over x number of gamble, 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 speculator want to do to be a consistently winning speculator? Recognize that you are wagering, and play like the winning gamblers play. Whether you are investing in stock, day trading investing futures or forex, or trading longer time frames, your investment or trading strategy must have the same important components 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 on your side, you should keep your total capital commitment on each trade small in relation to your total capital, and you should trade entirely without sentiment.
In order to provide these important components, 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 including slippage and commissions; and it must be a system that fits your personality such that you can operate it without sentiment.
If your day trading investing system, swing trading system, or long term investment strategy does not provide these three important components, then you will be a losing speculator and an lost investor. If your system gives you clear entry and exit criteria, work day the odds slightly on your side, and allows you to trade objectively and without sentiment, then you cannot fail.