This short YouTube explainer (hosted by Alberto Costa) contrasts trading, investing, and gambling across multiple dimensions: typical time frames, analytical focus (technical vs fundamental vs feelings), goals (speculation vs ownership vs excitement), risk management approaches (stop losses vs long-term holding vs panic), time spent on analysis, directional bias (long/short), and long-term profitability. The presenter emphasizes that both trading and investing can be profitable if done with discipline and a defined approach, while gambling—driven by emotion and lacking systematic risk management—typically leads to losses (citing a "90% lose 90% in 90 days" statistic).
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Hi, welcome to this video. Today we are going to compare trading, investing and gambling. Why we all have in our family or among our friends, someone telling us that, you know, trading or investing in the stock market is very risky. You are going to lose everything. And actually this is kind of happening in the real world. If you know the 199090 rules. Basically is a statistic saying that 90% of the retail traders lose 90% of their capital within 90 days. And it's very scary. But nevertheless, trading, investing and gambling are not the same thing. And today I'm going to show you the differences between these three methods. As usual, please have a look at the disclaimer and then we can start. Okay, so what are the differences between trading, investing and gambling? Let's look first at the time frame. Okay, time frame. For trading, usually the time frame is short. It depends on your style. I made a video about that explaining the different type of styles. But basically you may have people that are, you know, trading with the minute candle, the scalping. You can have day trade where you are in and out within one day, swing trade where you have maybe a few days to a few weeks and even longer time frame. And this is usually true for traders, but investing usually is a longer time frame. Ok. Gambling on the other hand, is usually very short. Not always, but usually. Why? Well, the thing is that we will see the third point. The reason why people are gambling is for the excitement, it's not for making money. So they want to feel this excitement as many times as possible. So usually they can go in and out very often. What is the focus of the three strategies? Well, for trading is technical, technical analysis using tools like moving averages, for example. I made a video about that. For investors, the focus is usually fundamental analysis. Okay, so you want to look at things like the price to earnings, the revenue, net income, these type of things that you find in the balance sheet of the company or the income statement, cash flow statement. I'm not saying that trading is only technical and investing is only fundamentals. Of course, when you are trading you may use some fundamentals as well. And at the same time, when you are doing investing, you can use technical analysis to better time in your entry. But gambling, usually the focus is only on feelings. As we said before, you want to feel excited. And also when you decide to enter or to exit, you don't really have a strategy. Usually what you have is a kind of, I don't know, maybe you feel that the stock is going up. Maybe it's a tip of a friend, maybe you have Seen some news on TV and then you think that the stock is going up or down. So you don't really have a systematic way to decide when to enter and when to exit. Right. What is the goal of these strategies? Well, for trading the goal is usually speculation. Okay. You are basically speculating on the price movement and use technical analysis to find high profitable trades, high probability trades. So the tools that you use from technical analysis can help you identify if the price is more likely to go up or down. In a way you are exploiting the emotion in the market. But for investing the focus is different. For investing, you want to find stocks representing companies that are good business. Ok? That's why usually you hold for long because you are not speculating on the short term price movement, but you're actually betting on the fact that the company you are acquiring is really good, is strong and in the next years is going to increase the price. For gambling, on the other hand, the goal is just to feel excited, right? Usually it's just that. What about risk management? I spoke about that in another video and I say that it's very important to survive in the market. Well, when you are doing trading, since you are doing, you are using usually a shorter term time frame, you want to have a stop loss, you want to cut losses when you are wrong, right? On the other hand, usually investing, if there is a drop in price, what do they do? They hold because they believe that the business is good. They have done their homework, they have found very strong companies fundamentally. So if there is a drop in the price because of some temporary news or the market is bearish, they have the discipline to hold. The only reason why you want to sell in this case is maybe because the company is not good anymore. Maybe some fundamentals are not as good as when you enter, but you don't sell just because there is a drop in price where the reason is maybe the bearish sentiment of the market. So for this you need the discipline to cut loss. For this one, you need the discipline to hold when the price is dropping or even buy more. And bear in mind that you cannot switch from one to the other. This is also a form of gambling. So if you are trading right and then your price is going down, you have your stop loss. You cannot remove the stop loss and say oh, actually for this one I think I take a longer term investing approach without stop loss. It doesn't work this way. You must decide before starting if you are approaching this business in a trading or investing point of view and you cannot switch according to what happened in the market for gambling? Probably the best way to describe the risk manager approach is the panic. People that gamble, they don't have a system, they don't have a strategy. They hope that the price is going up if they are long. But what if the price is going down? They don't know what to do. Usually they panic, right? Maybe they keep holding, hoping that the price is going up and then when their loss is too big, they sell. So it's really important, as I said, to have risk management if you want to survive. And this is exactly the reason you need to know what to do if something is not going as you hope. What about the time that you spend for doing your analysis? Well, for trading, it can be some minutes to some hours every day. Usually it's every day. Why? Especially if you are scalping or day trading. But even if you are swing trade, you still need to do your analysis to update your portfolio, right? You have to look at the chart every day to see what happened. But for investing, since you have a longer term, maybe you just need to look every month if the company stays solid and especially every quarter when they release the updated financial information. Before gambling, I think you usually don't even do any analysis because as we say, you just base your decision on feelings and the excitement. What about the direction? Well, for trading you can have long and also short, right? Because you want to exploit the movement in the market. So you can have long position when the market is when the stock that you are watching is going up or short when you feel that, well, actually not when you feel otherwise you would be gambling. When your system tells you that it's more likely that the stock or the commodity future, whatever is going down. For investing, since you are betting on the fact that the company is strong, usually you take only a long approach. For gambling, it depends, it depends on the person. Actually, both long or short are possible, but I think long is more likely. And finally, what about the profitability of those systems? Well, if you do trading and you have an edge and you do it correctly, yes, it's profitable. At the same time, investing is profitable when you're doing correctly, right? So you identify strong companies that are growing like Warren Buffett. But if you do gambling, usually in the long term you are not profitable. And this 199090 statistic that I mentioned at the beginning, many of the people losing money are actually in this group. The 90% of the people losing money, probably the majority belong to this gambling where you don't have any strategy and you base your decision on your feelings, your opinion, or what other people tell you. Okay, so let me clear this. What is the main message of this video? You can trade or invest. That's up to you. It depends on your approach. It depends on how much time you want to spend. If you are more comfortable with looking at charts or looking at the financial statement of a company, and both of them can be profitable. But you should not gamble, because this one, in the long term, you are definitely going to lose. So that's all for this video. Thank you for watching. And if you like it, please subscribe to this channel. See you next time.
