What’s the difference between Gambling and Trading?

People that are not traders or investors are always commenting that investing in the stock market is just the same as gambling, however I firmly believe that there is a difference between the two.

The difference between trading and gambling is the same as the difference between being the house and being the guy in the chair at the blackjack table.

The house controls the size of the bets they take (money management), they know the probability of making money (their system), they can’t control the cards any more than we can control what a stock is going to do, but they know that their system will make them money over time.

The gambler in the chair is most traders, especially the new ones, no risk management, they switch trading systems/ideas often…oh look another shiny penny over there.  They also have no clue of their probability or risk reward ratio and all this leads to emotional trading/gambling which leads to being wiped out….sad but true, been there, bought the t-shirt, learned to be the house.

Of course you could argue that people who visit a casino, expect to lose, it’s purely for entertainment value, but traders expect to win, it’s not very entertaining to lose money in the market, completely different mentality and approach, but with the same outcome if you don’t act like the house.

May today be a profitable day…for all of us.

John