With a trading university, are you trading or are you gambling?
It’s a valid question. If you don’t know the answer, then there’s a good chance you are gambling. Believe it or not, there is a difference. In this brief article, I want you to assess whether or not you are a trader or a gambler. It is an important distinction. If you have not yet found success as a trader, then you might be in the wrong camp, unknowingly. We are going to fix that, right here, and right now.
First, let’s come up with some simple definitions. From my point of view, a gambler is somebody who takes risks relying mostly on lady luck. Typically, the odds are stacked against them. They may win when they roll the dice, but if they continue to gamble, in the end, the house will take their money. Why? Because the house is NOT a gambler. The house is in the ‘business’ of gambling but they are NOT gambling. They are TRADERS. They know that their statistical ‘edge’ will grow their equity over time. They don’t care if they win or lose this hand or that hand. It is the ongoing activity that makes them money. That’s what winning traders realize, too.
Successful ‘Traders’ do NOT gamble. Traders take ‘calculated risks’ whereas they have determined that the ‘odd are in their favor.’ They will win and they will lose and the distribution will appear to be random. In fact, it actually is random. The difference here is that due to the odds always being in their favor, as long as they stay with their plan and remain adequately capitalized, they will steadily make money, despite the randomness of their wins and losses. The gambler will ultimately LOSE money, like MOST ‘so-called traders.’ That IS the difference. What has the most influence over whether a trade will win or lose? Lady-Luck or Calculated Odds? If Lady-Luck is the determining factor, then the trader is actually a gambler.
90% of traders fail. Why is that? Let’s keep things very simple. Staying with the definition that we just established, it is because they are not traders. They are gamblers and their decision making are gambling decisions. They are NOT taking calculated risks that stack the odds in their favor, so by our definition, they are NOT traders. That’s GOOD for those of us who ARE traders though, right? It gets me excited for Monday’s session!
Have you heard of the professional poker player, Chris ‘Jesus’ Fergusen? Would you say he was a gambler, or a trader? Poker is a unique game because players do not play against the house. They play against other players. Chris did the math. He calculated, that due to his superior skill at poker, that he would make money 50% of the time, playing in 9 seat ‘sit & go’ tournaments. Not necessarily 1st place, but perhaps 2nd or 3rd sometimes as well. Just think of a trade only going part way and exiting with a partial profit. It’s still a winner, right? Anyway, he also calculated that so long as he risked 5% of his available capital on any one tournament, no more – no less, with his 50% win rate, he would steadily grow his capital. He proved it online, when he turned a starting bankroll of $1 into $20,000 within two years. He began entering 5 cent tournaments, 5% of $1. Little by little he doubled his money until he was able to enter 10 cent tournaments and in such a way, he built his bankroll up to $20k.
Now, I ask you, using our above definitions, is Chris Fergusen a Gambler or a Trader? If you think about it, as humans, we are taking calculated risks with every decision we make in life. All our decisions will have a consequence, won’t they? We make hundreds if not thousands of them every day. And while we cannot totally escape the reality that Lady-Luck will play a part in the outcome of our decisions, we can and do try to neutralize her as best we can. We do that by trying to make the best decisions we can, over and over again. Think about it. We are ALL traders when it comes to life decisions, even if we don’t always KNOW how to calculate the risks properly. Some of our life decisions are indeed gambles though, aren’t they?
Most traders have trouble with losses, for obvious reasons. Unfortunately, the losses are just a distraction that mask over what the REAL problem is. They are gamblers. They have NOT put the calculated odds on the side of their trades. If they did, then they wouldn’t worry about losses. They would understand that losses are part of the winning equation and it would NOT trouble them. Do losses trouble you? If so, it is a very strong indication that YOU are a gambler and not a trader.
Here is a simple technique that you can use to help you move out of the ‘gambler’ camp and into the ‘trader’ camp.
On a sheet of paper, make two lists:
First, list all the aspects of trading that you do NOT have control over. I can think of a few obvious items to put on the list but I want you to think it through. These are the items influenced by Lady-Luck and there is NOTHING you can do to influence, change or control their outcome.
Second, list all the aspects of trading that you DO have control over. Give it some thought. It’s worth the effort. These items represent the aspects to your trading where you CAN and MUST put the ODDS in your favor if you hope to be a successful trader.
Once you have finished, please respond to this article in the comments section with your two lists. As a group, we will come up with the best list and together, we will work at becoming successful traders.
In the next article, we’ll discuss how we’re going to deal with these listed items so that we can be sure that we are traders and not gamblers. — TJ