The key differences between day trading and gambling

If you want to build a career in trading treat it as your business, not your hobby.

If you are trading for entertainment, (like when people go to horse racing or the casino), set a monthly budget & only risk what you can afford to lose. Go ahead and have fun!

But if you want to make a living, treat it as your business. Trading is simple, so use common sense. Make a well thought out plan and execute it rigidly.
Ensure you preserve your capital and do not risk losing it all in a short period of time or on just a few trades.
You cannot make a profit if you do not stay in business! Keep control of your emotions.

One of Warren Buffet’s (the world’s most successful investor) most famous sayings about investing is “Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.”

This rule applies to trading!

How is trading different from gambling?

Trading is different from gambling in many ways. If you bet on a horse race, a roll of the dice, a turn of the cards or a spin of the wheel there is a clear start and end of the bet. There are only two outcomes – win or lose and you already know what you could lose or what you may win at the end of game, once you place your bet. You know when the game or the race or the match ends & when the next one starts.

This is one of the key differences between trading & gambling. Gambling is more controlled for those placing the best. Firstly gamblers know exactly what they can lose on each bet.

However a trader is the one who decides when the bet starts because that is when you enter the trade. The markets trade constantly from Monday morning to Friday night. Crypto markets never close. They do not open just when a trader decides to place a trade!
The trader must decide when the trade ends. Usually when the trade hits the stop loss or target, if the trader is adhering to strict trading rules. However some traders are forced to exit the trade when they receive a margin call, because they have lost heavily.

Even when the market is closed over night or on the weekend, the game is still being played if you have a position open. In between the start and the end there are endless predictable & unpredictable potential outcomes.
The trader can win or lose almost any amount (of the amount in the trading account) within that time. No one will stop the game for you as a trader, unless you run out of margin and lose everything….only you decide.
This is EXACTLY why you need to exercise complete discipline.

By setting your stop and target as you enter the trade you are defining the length of the trade and removing your emotions from the decision process. 

Professional gamblers are professionals because they understand the game and how to use the tools at their disposal to maximize their chances of coming up short.

For example, poker players study theory and practice strategies to improve their games. Market watchers know when to enter or exit a position depending on what happens with the price. Sports fans understand the strengths and weaknesses of each team so they can bet on the right side of the odds.

To be successful as a day trader, though, you need to know about the markets and the psychology of buying and selling.

Key differences that can help you day trade without gambling

Here are a few key differences that can help you day trade without gambling:

    1. Have a trading plan: It’s important to have a clear plan in place before you start trading. This should include your entry and exit points, as well as risk management techniques.
      A well-thought-out plan can help you make rational decisions instead of relying on luck.
    2. Educate yourself: Gambling often involves making decisions based on limited information or understanding of the odds. On the other hand, day trading requires a solid understanding of the markets and trading strategies.
      By educating yourself and thoroughly researching your trades, you can make informed decisions instead of relying on luck.
    3. Manage your risk: In gambling, the amount of money you can lose is limited. In day trading, it’s important to have strict risk management techniques in place to protect your capital & ensure your losses are limted.
      This might include things like setting stop loss orders and not risking too much on any single trade.
    4. Stay disciplined: Discipline is key in day trading. It’s important to stick to your plan and not let your emotions get the best of you.

Trading can be a great way to make a living.

You do not need to rent an office, shop or warehouse, you can work from home. Many day traders travel the world and some trade from holiday destinations. Traders have no stock to manage, no staff to pay, no security issues, no customers, no invoicing and cash flow problems (if you make a profit it is in your account instantly) 

Stick to the rules and keep it simple.

    1. Do your own research and make your own decisions.
    2. Set a budget for how much to risk on each trade and always aim for at least twice the profit verses what you are prepared to risk.  Never risk more than 2% of your trading capital in a single trade.
    3. Use stop-loss orders and never move them against the market to increase your loss.
    4. Set a daily loss limit on your account (Eg 8%) and quit trading for the day if you hit this limit.
    5. Set a daily Stop Win limit and quit trading if you hit this limit. You deserve a break!
    6. Take a break when you have had an exceptionally good or bad run. 
    7. Make calculated trades. ‘Plan your trade and trade the plan’. Do not trade impulsively on gut feelings.
    8. Enter a stop loss when you enter a trade.
    9. Always trade in the direction of the prevailing trend.

By following these tips and approaching day trading as a business rather than a form of gambling, you can trade more effectively and with less risk.

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