Is Trading The Same As Gambling?

  • September 10, 2014
  • Blog

Gambling is a serious problem, it can potentially ruin families and you know over the long run you are going to lose. Everyone knows that, it is treated as an expensive way to enjoy yourself and a bit of fun. Would everyone say that? I’m not so sure. Try telling that to a professional card counter.. or dare I say casino cheat.

They know that the ONLY way they are coming out of that casino with a wad of cash is if they understand probabilities. Mathematics is fascinating and powerful. Take Blackjack for example the average player plays at a 5% disadvantage. This doesn’t sound like a lot. But this is the power of having a small “edge” in the market played out thousands of times. Think how many hands of blackjack are dealt in an hour across Vegas and on average the house is taking 5% of your capital. For every $100 you wager, you will get $95 back. There may be periods when you win and periods when you lose more than the average, but over time your end result will always be that bleeding of cash.

What card counters do is know when the dealer is more likely to bust and by using position sizing systems bet bigger on these occasions and this results in a positive expectancy of a few percent. That couple of percent edge extrapolated over hundreds of hands dealt with large bets results in huge returns. In fact one of the forerunners of card counting went on to be one of the most successful traders of all time. His name Edward O. Thorp.

This is about “Edge” or positive expectancy. Without a statistical advantage over your competitors (other market participants) you will slowly bleed money to the market like a gambler does.

However, once you have an edge, a strategy and a guideline for how to execute trades in the market where the probabilities are on your side, and it doesn’t have to be very big, it is mathematical certainty that you will draw money from the markets into your account.

This is also why I am a huge advocate of short term trading and is what I teach. As a day trader I am dealing dozens of hands a day, my small edge playing out over and over, sure I will sometimes have a period when I lose 3-4 times in a row, but I still have plenty of opportunity to carry on trading through the day and my statistical edge gets me back in to profit most days. Medium term traders or longer term traders spend half their lives trying to mitigate losing months and losing weeks because they trade so infrequently, a losing period of 4 trades to a longer term trader could be a fortnight of losing money. To me it is a bad morning. Gamblers have no edge in the market and the more they trade/bet the more they lose. A professional trader has a statistical edge in the market (with the right education and mental attributes) and this means the more he plays that edge the more money will be “won”. That is the difference between a trader and a gambler. Most traders are gamblers. But the profitable traders are certainly not gambling.

Card counting is actually considered cheating (even though they are just using mathematics to enhance their edge) but the casinos are terrified of that. However, in Futures trading it is a completely even playing field, the exchange just facilitates trade, it doesn’t aim to make it impossible for you to win, despite what struggling traders tell you. I have been developing and trading edges in the markets for years and when you have that edge, it is pretty straight forward. But gaining a trading edge is what makes you stop gambling and start trading.

Please get in touch or look around the site to learn more. You can get access to my E-book containing professional trading strategies I use, worksheets, insider information for just $45 here