Trading Vs Gambling
Hope you all doing good in your trading in Stock Market. Today i want to share you some concepts which helps you to think again that are you doing trading as a professional trader or like a Gambler.
- Returns expected:-
People came here to make money but question is how much money you want to make in this market? YES answers are different for everyone. Some are wanted a less but fixed returns and some wanted a fancy returns. What i mean a Fancy Income? many people are thinking that they can get 100% return in one month. Is it possible? Probably not. Returns from this market depends upon various factors like your discipline ,patience ,risk management, position sizing etc. So you have to think again why you are doing trading? You can get a good but a genuine return from this market but if you looking some fancy returns may be you will end up losing everything here. So think again.
Gamblers will often try to bet themselves out of a hole, which most times leads them further into financial ruin. You can display similar behavior with the market if you go on a bad run.
No matter how good you are as a trader, you will encounter dry spells. It will feel like the market is against you and you are unable to pick a winner. Smart traders will either stop trading for a period of time or will start to take smaller positions until they are able to sort through their slump.
If you find yourself trading more heavily during a downturn or worst using more money to dig yourself out of a whole, you have now crossed the fine line between gambling and investing.
I remember a time where I was day trading and the market had given me a few lumps by 11am. Instead of trading smaller or stopping altogether for the day, I decided to “beat” the market. I began taking on position after position, so much so that by the end of the day I felt like I had been through a meat grinder.
I think I may have been up or down a few hundred bucks after all that work. I remember saying to myself, “What are you doing?”
I may have had a few days of overtrading on that level afterwards, but if you are becoming somewhat of a gambler, you will notice that the majority of the time you are overtrading.
This need to overtrade is the same thing a gambler feels when they need to place more bets to “fix” the problem.
3.Leverage you are taking:-
Leverage is nothing but buying something to put only 15-25% capital.
So lets assume if you want to buy stocks worth ₹20000. There are two ways. 1). You pay the full amount. 2) Use derivatives, pay 15% i.e $3000
A 5% move in the stock will actually give you the same money. ₹1000. But because the invested capital is less and leveraged, the returns look abnormal.
The catch here is lot of people enter the world of derivative trading, without understanding the nuances of it. The problem occurs when the stock moves 5% against you and you lose ₹1000. Which is 33.33% of the capital.
So think again before taking such leverage.
Under no circumstances should you be using credit cards or taking out loans to place money in the market. Think about it, the market already provides you margin which allows you to trade above the available cash on hand. Why would you need to then take out more money?
The simple answer is greed and a little bit of stupidity to boot.
Please answer the following questions:
- Are you using credit cards to fund your trading account?
- Have you used money from a home equity line?
- Are you borrowing money from loved ones?
If you have answered yes to any of the above questions, stop whatever you are doing and replace these funds, because you don’t actually have the money!
It is one thing to lose your own money, but you should never allow the market to place you in a position where you are going in debt due to your trading. If you can’t turn a profit with your own cash, what makes you think you will turn a profit with borrowed money? It’s not about trading larger in order to make money; it’s about trading smarter with what you have on hand.
If you are going to do trading, it’s essential to have a set of rules to manage any possible scenario. Even more important, you must also have the discipline to follow these rules.
Sometimes, in the heat of battle, traders will throw out their own rules and play it by ear — usually with disastrous results.
If you are finding yourself abandoning rules in order to place random bets in the market, you are in trouble. This is a clear sign that you are no longer concerned with establishing a rationale for your trades and have instead opted for the ability to just place trades whenever and wherever you want.
This sort of behaviour is similar to the gambler who is not concerned with calculating odds, but would rather just stay in the game and place bets.
How do you think this hope for the best mentality will play out in the markets?
Although many traders can handle winners, controlling losing stocks can be difficult. Many rookies panic at the first hint of losses, and end up making a series of impulsive trades that cost them money. If you’re day trading, you must be willing to accept some losses. The key: know in advance what you’ll do if you’re confronted with losses.
Although anyone can learn to day trade, few have the discipline to make consistent profits. What trips up many people are their emotions, which is why it’s so important to create a set of flexible rules. Your goal: follow the rules to help keep you on the right side of any trade.
Most people that trade do so sloppily. Where the line begins to cross between sloppy investing and outright gambling is the frequency of the violations of the questions mentioned throughout this article.
You have to be honest with yourself. If you are day trading and violate any of the questions listed above, you will fail at trading. I know that sounds harsh, but it is the grim reality of the market.
Thank You. All the best. Have a profitable trading.