Are You a Trader or a Gambler ?

By | August 18, 2014

Are there any differences between a trader and a gambler? I’m sure that many people will say no.

Let’s look up the two words in the dictionary: A trading – to engage in buying or selling for profit

gamblingthe act of playing for stakes in the hope of winning

At first sight, it appears that they are indeed one and the same – both the trader and the gambler want to gain a profit from their activity. But the way they go about achieving this goal makes all the difference in the world.

The gambler has no effective trading strategy, he’ll buy or sell on a hunch, on something he read on the internet or heard on TV. He doesn’t plan the trade and trade the plan, thinks that money management doesn’t apply to him and varies trading sizes according to gut feel. He personalizes the market, takes revenge trades after he loses and has intense emotional ups and downs.

The exact opposite is true for the trader: he has a trading strategy which has evolved over years to match his personality and follows his trading plan to a T. Money management has a crucial importance for him, as he always looks first at what he stands to lose as opposed to what is there to gain. He knows that the market is impersonal and getting mad about it doesn’t lead him anywhere. Consequently, he doesn’t become emotional and treats trading like a business.

Remember, the first step in the long journey to successful trading is to assess clearly where you are now. If, after taking a good hard look at yourself, you realize that you resemble more the gambler, you should first stop the bleeding. That means stop trading real money. Go on a demo while you start developing your own strategy and making sure it’s viable (ie no martingale). Don’t forget risk management, because no matter how good your strategy is, it will always have a series of losses. After you get comfortable with it on a demo, start again with real money, never forgetting that you have to treat trading as a business if you want it to pay you like a business.