By James Trescothick, Chief Global Strategist, easyMarkets
If you are involved in market investments, especially online trading, you must ask yourself the question, “Am I a gambler or a trader?”
To answer this question, you must first understand the difference between the two. Both make online investments but why is one considered a gambler and the other a trader?
For a gambler, the overall motive of trading is the adrenaline rush and the thrill of being “in the game”. They freestyle their trading by making momentary decisions for the sake of making them. Common practices of a gambler include:
- Trading without a basis of solid information, leaving them vulnerable to the random nature of price movements.
- Using 5 minute charts to gauge support and resistances.
- Reacting to the latest economic releases without understanding prior market expectations, current price flow or countervailing information on the asset they are trading on.
For a trader, the act of trading is a craft they take time to learn and delve into its depth with informed knowledge and a lot of work and practice. Trading is not random; it is thought through and follows a strict action plan, which consists of a prudent money management structure. Common practices of a trader include:
- Trading only calendar risk on a reactive basis.
- Entering and exiting the market in a very disciplined manner.
- Using 30 minutes, hourly, daily, weekly and monthly charts to gauge support and resistance points.
- Carefully calculating Fib retracement positions and making decisions only when multiple time frames confirm their analysis.
- Having a full understanding of what is occurring in the markets on a daily basis and understanding the underlining economic and/or political story driving the market and creating sentiment.
The main and most important difference between a gambler and a trader is simply work. Like everything else in life, success requires hard and work and effort. Working hard is never a guarantee for winning, but as the old saying goes, failing to plan is planning to fail.
Gambling has more to do with blind luck. Just take the case of the casinos and all those tourists visiting Las Vegas. They can probably attest to the fact that successful cases of blind luck are extremely rare, hence why Nevada’s most famous city saw a hefty $25.2 billion revenue in 2016.
Trading, on the other hand, is a skill and for some people a profession. While luck has a small hand in most things in life, trading is about discipline, and understanding the importance of the information the market is constantly giving away, then using it in a plan fora potentialsuccessful trading.
So ask yourself: “Am I a gambler or a trader? Who do I want to be?”