Is Daytrading Just Gambling?

A lot of people believe that stocks are just random movements, which makes them believe that making money in the stock market is no different than gambling at a casino.

I would say trading is more akin to poker, than the randomness of roulette. In poker you are playing against other players and yourself, much like the day trading, where you are trading against yourself and trying to figure out what the money movers are going to do today through different types of Market Analysis. It's all about gaining that edge, and that edge can be gained through Fundamental Analysis or Technical Analysis.

I've also found that the feeling one gets from winning in gambling and nailing a big 10% trade are very much the same. Lighting up the greed centers in our brains. Which can lead us down a dangerous path of treating trading like gambling and not putting in the work to gain your edge. The big difference between getting that feeling of a 10% trade you have to put in a lot of effort and work to know where a breakout of that size is going to happen.

That work can be done through learning the fundamentals of business, what makes a business successful through their Profit & Loss’s, earnings reports, a deep understanding of how businesses operate in each sector and how money flows from one market to another. This leans more towards being successful in long term investing. This is the edge that you need to be successful in long term investing.

You can also alternatively learn Technical Analysis, which is good at predicting short term and long-term price predictions for stocks. If you are good with math, you will do well here because each skill builds upon the previous one and each one needs to be used in each trade to be successful in gaining that edge. I find that Much like how Calculus uses each level of math below it to solve the harder problems the further you get into math is very similar to the journey you will experience learning Technical Analysis. Basic Math is used in, Algebra and Geometry, which all three are used in Calculus. The main difference between the two journeys and what makes learning Technical Analysis, especially if you are learning C0tt0nC4ndTA’s style, will be a long and arduous journey much like Calculus, but the main difference is that in Calculus and math you are not dealing with your ego or the fear of losing money in a bad trade.

If you want to be successful in the stock market, you cannot be risk averse nor not care about the risk. You have to be able to mitigate risk as much as possible. This is another similarity between gambling and the stock market. Like in gambling, you have to understand how to protect your capital as it is the most important piece of the poker game, which is the exact same for the stock game. Knowing when to risk a large amount of capital or % of your trading account and when to risk a small amount of money in a trade is a very important skill and that skill is called Procedural Analysis. Procedural Analysis is everything you do before you enter a trade. Such as how much money you should risk, depends on the type of profit versus losses expected in a particular trade as well as the size of the account you are working for. This is yet another skill that crosses the gambling and trading threshold.

There is a reason there are a lot of day traders who used to be blackjack or poker players. They take a lot of the same skills to be successful at. However, unlike gambling you can gain a much larger edge in trading making you far more likely to be successful, which in turn is lowering your risk. Which is why I think successful gamblers tend to give up gambling to get into trading.

Disclaimer:

This is not Financial Advice and should be used at your own risk.