What is gambling?
Some dictionary definitions:
- the act of playing for stakes in the hope of winning (including the payment of a price for a chance to win a prize)
- a: to play a game for money or property b: to bet on an uncertain outcome
- to stake something on a contingency : take a chance
1) The Gambler Trades Through Earnings Reports: If you are a trader (as opposed to an investor) and decide to hold a stock/option position through earnings you are gambling. Due to the very nature of earnings reports your position could gap down or up; therefore, you are choosing to take a big chance (e.g., gamble) on what that stock will do post earnings. Sure, you could get lucky and win big, but you could also lose big. Long term success in the stock market is not about luck, but about skill. There will always be another trade on another day. Think before you trade making sure the odds (i.e. the probabilities) are with you, not against you.
2) The Gambler Trades Without A Plan: If you make your trading decisions based on the morning news, on the latest BLUE CHANNELS story, on a new strategy not yet tested, or on a market that you have never traded, then you are gambling. The successful trader has an army of stocks to trade, the weapons suited for that army, and a time tested trading strategy in place before a position is considered. When everything is going according to plan then and only then will it be time to pull the trigger.
3) The Gambler Goes ALL IN and Risks Losing It All: If you trade ALL IN, believing your trading edge is 100% foolproof, then you are a gambler. There is no sure thing in the stock market. There are just too many variables and too many traders who can and will disagree with your perfect signal. The disciplined trader trades a small percentage of his account balance and believes in probabilities, not a sure thing, knowing that trading is not about being right but about making money.
It is best to leave gambling to the casinos where the house has the advantage. In trading, the trader who has the focus, patience, and discipline to follow a strategy will have the advantage over those who don’t every time. We trade the trader, not the market and when we make money it is usually when we trade against the gambling trader.
Read the below mentioned Quote daily before market opens
Managing risks is in many ways the foundation of the entire process. Managing risk comes down to two things. First is how you are going to place your stops. That goes back to cutting your losses short. Consider trading as a business venture. Managing risk means recognizing what the costs of trading are. Make a comprehensive plan. Winning traders always treat their trading like a game, but they also look at the whole thing as a money-making business. – GLEN RING
Being wrong is acceptable. But staying wrong is totally unacceptable. Being wrong isn’t a choice, but staying wrong is. To play any game successfully, you have to have some skill, an edge, but beyond that it is money management. Good traders manage the downside; they don’t worry the upside. – MARK MINNERVINI
Every winner needs to master three essential components of trading; a sound individual psychology, a logical trading system and good money management. These essentials are like three legs of a stool – remove one and the stool will fall, together with the person who sits on it. – ALEXANDER ELDER
Markets offer unlimited opportunities for self-sabotage, as well as for self-fulfillment. – ALEXANDER ELDER
Most aspiring traders underestimate the time, work, and money required to become successful. – MARK D COOK
As usual, your article is quite refreshing. At times of uncertainty, it is a good idea to spend some time on the basics like those above rather than being an active trader. After all, the failures can become success stories only if we learn from the failures. Trading is no exception. Thank you once again. Cheers.
Thanks a lot sir for sharing your perspective on trading
Good collection of quotes.I think trading on earnings report is a big day for any individual trader. I have been trading straddle options for Infy for past 5 qtr , it has been a good earning chance.Yes you are correct in saying it is suicidal to guess the trend of stock after results.Nobody can predict how the market will react to the numbers good or bad but one can use the volatility to trade.
Keep up the good work of imparting knowledge through your website.
Thanks a lot Sir !! You can share with us your short straddle strategy, You can write a Guest Post also on the site for the strategy.
Let me know if you are interested.
Good article to recognize ourselves…………….
and inspire to change habits by going into trading methodology….which require deep study to understand technical……