Trading Psychology: How Do You Know If You're Trading or Gambling?
23 Oct 2022
A trader explains how to tell the difference between trading and gambling. The key: knowing your expected returns and having a system instead of relying on chance.
A trader explains how to tell the difference between trading and gambling. The key: knowing your expected returns and having a system instead of relying on chance.
One of my favorite questions to ask traders is how do you know if you're gambling or not? And a lot of times the initial response, and it's kind of an egoic thing, is, I don't want to trade him because, you know, I'm not just randomly trading. I've got a system. And the thing is, though, I'll ask them, okay, so how much should you be making every month? And when they can't answer that question, then I'll say, well, okay, let's step back again. Ask the original question. Are you gambling? Are you trading? Because the thing is, with any business venture, you should have an idea. If you're going into it in a truly knowing manner, you should have an idea of what the expected return is based on your plan going into it. And if you have no clue, which a lot of traders don't, they have no idea how much money they should be making with their account size in their system, they have no clue how much they should be making. So if that's true and the outcome of what you're doing is an unknown and you're relying on chance, essentially, yeah, you are gambling. And I had to admit that to myself early on, too.
