There is a list of a few things that differentiate Trading from Gambling and that is why there are still a lot of misconceptions and myths that trading is like any other form of gambling like sports betting or casino games.
Taking calculated risks, having a proper trading plan, proper trading knowledge (strategy), having patience as well as being able to control emotions over the markets while trading is all that differentiates us from gamblers.
Also, the reason most Traders still lose is that they trade with a gambling mindset. They trade based on rumors, based on hope, based on opinions, based on emotions, or even based on pips without having a proper and well-designed trading plan.
Gamblers’ chance of making money is 1:1 while that of Traders is 1:3 or 1:5 and above. This simply means gamblers only risk one dollar to make one while traders are supposed to risk at least one dollar to make three or five and above.
Most traders trade on a live market. The trouble is because of their emotions, they tend to lose more when they are wrong, and they make less when they are right by not cutting their losses early and letting their winners run.
Most Traders, because of instant gratification, the moment they make a bit of money they want to close the position and take tiny profits which results in small wins the fear of losing money causes traders to not want to cut their losses early hoping that it will turn blue soon.
There is an old expression in business that, if you fail to plan, you plan to fail. It may sound glib, but people who are serious about being successful, including traders, should follow those words as if they are written in stone. Ask any trader who makes money consistently and they will tell you that you have two choices:
- methodically follow a written plan or
- fail
Key Takeaways:
- Having a plan is essential for achieving trading success.
- A trading plan should be written in stone but is subject to revaluation and can be adjusted along with changing market conditions.
- A solid trading plan considers the trader’s style and goals.
- Knowing when to exit a trade is just as important as knowing when to enter the position.
- Stop-loss prices and profit targets should be added to the trading plan to identify specific exit points for each trade.