Are you familiar with the game of roulette? It’s one of the most popular casino games in which a player bets on various numbers or group of numbers and colors (black & red) in order to increase his odds to win when the ball stops rolling. But the important thing to notice here is that no matter how many numbers or colors a player bets on he cannot increase his odds more than the casino house. Yes. You read it right. The roulette is built in a such a way that nobody can know exactly what number will come up with every spin, but the house will always win over time.
Likewise, in stock market, when you trade a certain stock, you can not be 100% sure whether the stock will go in your favor or hit your SL. That’s totally up to the buying/selling force behind that stock which you can not control. But unlike casino, there are certain things which are in your control and that increase your odds of winning. AND THAT’S WHERE TRADING DIFFERS FROM GAMBLING.
In India, trading often gets compared with gambling. You might have even heard the same at some point too. Indians are not happy about their children choosing trading as career because of that misconception. Which is the reason for the poor statistics behind the number of traders in a such populated country. Not even 1% people in India are in this profession, even though this is one of the few highly rewarding businesses.
GAMBLING VS TRADING:
I already said above that in gambling you can not control the odds. But that doesn’t mean you should start trading right away without any proper education. If you don’t follow the procedure, then it takes no time to turn it into gambling. Following points will explain in short when trading is gambling:
No education about markets whatsoever.
No pre-defined strategies.
No risk management rules.
No money management rules.
Taking risky trades – e.g. low volume stocks, penny stocks, etc.
Averaging losing trades.
No profits, only losses.
I can go on and on. There are many things which act as fine line between trading and gambling. One slip and you become a gambler. And you don’t want that, do you?
A seasoned trader approaches & treats the market with the same seriousness as any other profession. He doesn’t just jump in it. A trader always back tests his strategies, where a gambler simply throws the dice in the hopes.
Always remember, markets are supreme and they don’t care who win or lose. But they do reward those who play by its rules. And when you go by pre-defined strategies, market don’t compromise in rewarding you. On the other hand, no matter how a gambler bet, the house will always have the upper hand. After all casinos are there to do business, not to make you rich.
When a trader enters a trade, he knows his loss appetite before entering the trade. And he also knows when to exit the trade as well. He knows the power of compounding and acts in such way. Where gambler goes with ‘I want a jackpot’ attitude with each n every bet. And that’s how many gamblers often go broke.
Now it’s up to you to decide whether you want to be a gambler or a trader. Learn the process, get familiar with pros and cons and then start small. Do not start big thinking that you know everything and that’s the gambler’s attitude. It doesn’t work like that. Respect the markets and market will respect you back in the form of bank balance. ????