March 9th 2007
I apologize for the lack of posts this week. I’ve been dealing with several frozen pipes in my home. Since I live in Northern New York, this happens more frequently that I would like.
I’ll be back on Monday.
March 1st 2007
In case you haven’t noticed, I’m experimenting with new looks. I think I have a good hit with the Greenline wordpress theme. I like the green on black themes, but my last one, gunmetal, just wasn’t getting it done.
I think the three columns of my current theme will allow me to expand the features of this blog.
Quiet day for me. I’ll have more tomorrow. Until then I’ll be tweaking this blog.
February 15th 2007
Matt Coddington at netbusinessblog.com has posted an article discussing if there is a “right way to earn”. The article asks the question if it is right or wrong to make money off websites that deal in advertising arbitrage, pornography, or gambling. I left a comment stating that “personally, I am opposed to making a living in activities that I feel are blatantly destructive to a person”. I stated that my trading profession “walks a thin line” in that it has the capacity to be addicting and abused as in gambling.
It got me thinking about what the difference is between gambling and trading. I’ve had this conversation with people before and to someone not involved in market speculation I can see how trading does appear to be gambling. So I wanted to use a post to address this issue. My thoughts centered around three main points:
1. I thought that trading is not gambling because gamblers do not respect risk. The focus in gambling is how much money I can make where as a trader looks at how much they can lose. Each trade I evaluate has a stop. I gauge the risk in a trade by asking questions like what the trend is of the overall market. But in reality some poker players have a healthy respect for risk. Good players know how to calculate the odds of a winning hand and they adjust the amount they bet accordingly.
2. Well, then I thought, trading is not gambling because trading decisions are put in the context of a system. This should remove the emotions out of the decision making process. There is a template that the trader uses to evaluate his/her trades. That template is overlaid on the market when we evaluate what to do next. Our decisions are based on what that methodology tells us to do, not what we hope or feel should happen. This was getting closer to a real difference. However, there are several systems for playing poker. Some way more complex than my own trading methodology.
3. Which brings me to my third thought: True trading is devoid of emotions. If I’m really trading and not gambling, my decisions are emotion free. Where as a gambler hopes and dreams that the next bet will hit the jackpot, I systematically buy and sell with the same rules, day after day. I don’t really care if i win or lose. My focus is on how well I executed my trading plan.
Trading as a business is cliché, but it’s true. I’ll use one of my favorite analogies where you substitute trading for a clothing store:
Could you imagine a clothing store manager buying inventory strictly on the hope that they’ll make a killing on it? Does it make sense that this store would not do any market research? Or any kind of due diligence before making their buying decisions. And does it make sense that this store would hold onto inventory that wasn’t selling, that wasn’t in demand, even though they really liked the color? No. How about this one: If the store specialized in shoes, and each year did the same process for predicting market demand, doing their due diligence, finding the best supplier, and marketing their products; if the store had a bad month, would they angrily dump their inventory and totally change their business model? Would I change my trading business model?
Since trading is like any other business, the difference between gambling and trading is that I treat trading like a business. When I don’t, I am gambling. When I let my emotions govern my decisions instead of the business processes and methodology that have stood years of testing and careful, selective, revision; I am gambling.
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Copyright © 2010 A Trade A Day. This site may include market analysis. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk.
