Trading and Gambling Compared

As a trader, has anyone ever commented to you that it sounds like gambling? I’ve had a few people ask me what the difference is, so let me summarize what I think about it.

Let’s start with gambling.

When you partake in any of the games of gambling, you are dealing with FIXED odds, and the odds are always against you. That means that no matter how many times you win, in the end, you will lose your money.

In contrast, any other decision you make in life, the odds VARIABLY change. For example, the odds of getting into a car accident change depending on what time of day or night you drive. Even with all the traffic, your chance of dying in a car crash is lower in California than Montana.

The odds of getting a divorce after 5 years for a couple who don’t live together before marriage is 20%, jumping to 49% if they do live together. With both of these examples, notice the odds change based on variable circumstances.

You can figure odds and probabilities on any decision, big or small, each and every day of your life.

Let’s look at trading now.

If you don’t have a strategy and you are not planning, but jumping into a GBP/USD trade for any reason like gut instinct, you are gambling.

If you have a strategy, i.e., if price on my chart is here, breaking resistance at a double zero, then I enter with a 10 pip stop, then that’s planning and taking a trade. Is there a chance that the trade will not work? Yes. But here is the beauty of trading, if I don’t like what I see, I can get out of the trade with a small gain or loss, or at break-even where I don’t lose any money. You can’t do that once you place your money on a roulette table.

For every trading vehicle, the odds change based on what you are trading, when you are trading it, what’s going on in the world at the time of the trade, and sentiment of the crowd of people trading it, just to list a few of the variables.

If you start a business, there are odds that it will be a success or failure. Once again, the odds are not fixed, and there are all kinds of variables that can make or break that business.

Let’s stop thinking that trading is gambling, and put it in the same category of any life decision with odds that variably change based on all kinds of different circumstances.