Clarification is a tool educators use to both reinforce ideas and to make sure others understand the point being made. As an educator, I would like to clarify a point I have made more than a few times in this column, as some of you have written to me questioning the notion that trading is gambling. The general question goes like this: “If trading is gambling, why do it?”
My friends, the word “gambling” is the reason for the confusion. I imagine the immediate image associated with the word is a noisy slot-machine room in Las Vegas, or screaming bettors at a racetrack, or some seedy backroom of a bar where people are playing cards. True, gambling is all of these things. As well, though, gambling is getting into an airplane, driving your car, or hiking deep in the wilderness. All of these are gambling as well because they have associated risk. The issue is not risk; the issue is how we mitigate risk. In other words, how we reduce the probability of a bad thing happening, or how we turn the odds more in our favor.
When we get into an airplane, the airlines have reduced the odds of a crash considerably. Don’t you latch your seatbelt when you get into a car that also has airbags? Would you hike in the backcountry without water, good boots, a compass, a knife, and a first-aid kit? In these cases, as well as all other life activities, mitigating risk is the key.
Trading is also gambling, but what makes it different from the casino, the racetrack, or the backroom is that with hard work, knowledge, experience, and quality trading tools we can reduce the odds of failing. More importantly, successful traders actually raise the probability of a winning trade to more than 50-50, which are the very best odds you will receive in any casino gambling game. In fact, in today’s digital world, quality software (along with your skill set) can actually raise the probability of success upwards of 70%. This is the difference between trading and “gambling” where the odds are firmly in favor of the house.
Keep in mind, if you trade without a solid skill set or quality tools, you are gambling much like gambling in a casino or at a racetrack. If you do not know what you are doing, the odds are clearly in favor of the “house.” The markets will beat you and you will lose your money.
So, when I say trading is gambling, it is, but it is like any other business endeavor – nothing is guaranteed, but if you do the necessary work, learn your business, and perform, you increase the probability of success. I hope this clarifies the use of the word “gambling” for all of you have written me with your concern.
Trade in the day; invest in your life …
