Is Day Trading the Same as Gambling – What Are the Similarities and Differences?
“Is day trading gambling?” is a popular question. But it’s not one that can be answered appropriately with a simple yes or no answer.
Gambling – by the general definition – is the activity of playing a game of chance for money or other stakes – a definition that certainly fits trading as well. But there’s often a negative connotation of recklessness associated with gambling, which isn’t necessarily true.
I would agree that the majority of people who choose to gamble do so out of impulse (an emotional desire for thrills and excitement) – and financial markets are incredibly easy-to-access platforms available to virtually anyone looking to feed their impulses.
But there’s a massive difference between “good” (player advantage) gambling/trading and “bad” (impulsive, irrational, and reckless) gambling/trading. Bad gambling/trading is all too common, but good gambling/trading is extremely rare.
So simply saying that “trading is gambling” based on the general definition of gambling kind of misses the point – in my opinion – because that sort of generic answer would probably make you assume that trading is entirely luck-based (which it is not).
Instead of: “Is trading gambling?” – I think the more meaningful question is: “What’s the difference between good and bad trading?”
3 Main Ways That a “Good” Gambler or Trader Differentiates Themselves From the Pack:
To better understand the distinction between good and bad trading, here are 3 major ways that good traders set themselves apart:
1. POSITIVE EXPECTED VALUE
Having a strategy or system with positive expected value means that the gambler/trader has good reason to believe that their methodology will be profitable over the long-term (based on trade data/statistics, journaling, backtesting, etc.).
There’s a specific formula that can be used in order to calculate expectancy, which includes win rate (%), loss rate (%), average win ($), and average loss ($). In essence, this calculation tells you in objective terms whether or not you have a legitimate edge.
Day trading often tricks people into thinking it’s all about immediate, short-term rewards. But even though it’s a short-term approach, it still requires a long-term outlook. Good trading puts the odds in your favor – bad trading does not.
2. PROPER RISK & MONEY MANAGEMENT
In addition to a system with positive expected value, good traders implement proper risk and money management tactics so that no single trade or losing streak leads to ruin. Long-term survival is far more important than any short-term gains.
This is why most successful traders put no more than 1-2% of their entire account value into individual trades. It’s not about the result of any single trade, it’s about the results over hundreds and thousands of trades (with consideration to the law of large numbers).
Comparatively, it’s common to see people put 20-100% into individual trades – which is an eventual recipe for disaster. No matter how smart you think you are or how much conviction you have – there’s always the possibility that you can be wrong.
3. STRONG MINDSET/PSYCHOLOGY
An effective mental framework is the glue that brings everything together. It’s what allows you to think from a probabilistic perspective and execute on your edge (the criteria/triggers/rules that make up your system/methodology) with consistency and discipline.
In my personal opinion, this is the main reason why the vast majority of traders end up quitting/failing (over 90%). Typically, new traders are so caught up in trying to find holy-grail systems that they completely overlook their own attitudes and beliefs.
No matter who you are – long-term, sustainable trading success requires a paradigm shift. Instead of rejecting loss, risk, and uncertainty, you have to embrace them (with structure and discipline, of course) if you want the potential rewards they can provide.
Conclusion – Good Traders Are Process-Focused and Play the Long-Term Game:
Overall, all traders are gamblers in the sense that they’re playing a game of probabilities for money. But not all traders are compulsive gamblers addicted to the action – looking for quick dopamine hits. That’s just not how good traders operate.
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Instead, good traders sacrifice short-term emotional gratification for long-term profitability. Getting stopped out of a trade might not feel good in-the-moment, but it protects against large losses. They’re process-focused rather than results-focused.
I fully understand why these gambling misconceptions exist – because most market participants treat trading like an opportunity to impulsively gamble. But again, that’s simply not what good traders do – they have a completely different approach.
The tricky part to grasp is that any random person (regardless of skill and experience level) can win big on any single trade or short series of trades out of sheer luck/variance (sometimes making them think they have some sort of special gift/talent).
But without a statistical edge, proper risk & money management, and strong mindset/psychology – luck eventually runs out.
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Written by Matt Thomas (@MattThomasTP)
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