Trader = Gambler?
Submitted: 19 Oct 10 14:27
 

Most people who are uninitiated into the world of trading often think that trading is the same as gambling. If you look at how many people had lost money in the markets, and picking up stocks or taking trades without any substantiating reasons, it is natural you may think that trading is no more than trying to guess what’s the number on the next die throw.

If a trader takes a trade by pure guesswork, then how do you explain the fact that some traders are able to make money from trading consistently for years? This handful of traders cannot possibly rely on luck.

What these winning traders possess is a set of rules that help them determine WHEN they should take a trade. The set of rules allows the trader to take a trade that has a higher chance of winning. The key idea here is about probability. The trade may still turn bad, but if say the trade has a 70% of success based on research and testing, then typically there will be 7 winners out of every 10 trades. If you look at gambling, the Casino, in this case, has the odds calculated such that the house will have an edge of 4-5% over the player. As long as the players keep playing, the Casino will win in the long run.

If the trader has the discipline to carry out his vigorously tested trading plans religiously, he will be playing AS the house, and the numbers will takes care of itself in the long run.