Day Trading & ScalpingSwing & Position Trading

Is Trading Gambling?

Not long ago, I was spending time with a friend of mine who I have been close with since we were children. For years, anytime my career comes up in conversation, he insists that trading is nothing more than gambling. I actually get this question from others at trading events as well. It is a very hard question for me to answer because I think the whole question is wrong.

Whether you are a trader, gambler in a casino, Pepsi buying advertising space on a network, retail store owner, casino, car dealer, franchise owner, street vender, someone who buys and sells things on eBay, and so on, YOU ARE A SPECULATOR at some level. The trader takes on risk in a market for a potential reward. The gambler risks a $5.00 chip on the black jack table to try and make $10.00. Pepsi pays $1,000,000 (risk) for a commercial spot during the Super Bowl hoping to see a return (reward) on that investment much greater than the cost (risk) of the commercial. The retail store owner buys inventory (risk) in hopes of selling that inventory to you and I at a much higher price (reward). I think you get the point. If you think of it this way, the real question becomes: “What type of speculator are you?”

Are you the type who only takes on risk when the odds are stacked in your favor, or are you the type that takes on risk when the opportunity “feels” right and “looks” good? My answer to my friend was simple. I said, yes, trading and gambling are very similar, but there is one big difference I told him. I said, “Imagine playing blackjack (21) and not having to put any money on the table until after you see the dealer’s cards, and then being able to bet as much or little or even not bet at all. Furthermore, if you do place a bet, you can take all your money off the table whenever you want; THAT’S TRADING.” In trading, we have the ability to only put our hard-earned money at risk when the odds are very much stacked in our favor. A casino would love to have the odds that the astute market speculator in the trading world is able to enjoy.

The issue is that most market speculators can’t tell the difference between risk and opportunity. In fact, most get it completely backwards which is great for the astute market player. This novice group continuously falls for the illusion trap that disguises risk as opportunity. Why is this the case? In my opinion, it’s a combination of human emotion and just plain old laziness. People tend NOT to want to put in the hard work and reality-based thinking it takes to develop the market skills needed to get paid from the “un-skilled.” There are no short-cuts. If someone is not interested in putting in the hard work it takes to attain proper trading skills, profitable trading opportunities will equally not be interested in them. The most rewarding opportunities always go to those who enjoy working hard and who engage in out-of-the box thinking, not those who lack interest in hard work.

I have written on many occasions, that the movement of price in any and all markets is simply a function of a pure supply and demand equation that is easily quantifiable on price charts if you know what you’re looking for. Low risk, high reward, and high probability opportunity is present when this simple and straight-forward equation is “out-of-balance.”

If you are a trader who risks your trading account on the inconsistent whims of random chance, you are likely the trader trying to cut corners and find short-cuts to trading success. In “compensation” the world over, everyone gets EXACTLY what they deserve. Life has a masterful way of evening the score. Your pay-back is eventually equal to your physical and mental efforts. If you’re not motivated to develop the needed skill set, you will likely transfer your account over to someone’s account who is. I have been in this business for many years. Trust me, if there was a short-cut to trading success, I would have found it.

You see, whether you are a trader, a company like Pepsi, a retail store owner, or one of the others, all that really matters is the type of speculator you are. Those who invest the time and energy required to attain a rule-based strategy that locks them into low risk / high reward profits simply get paid from those who don’t. The reality is that this is how the world works so let’s begin to qualify the difference between some higher probability trading opportunities and lower ones, as knowing the difference is a key to success.

A market situation we are often faced with is a gap. We can use a simple checklist based on objective information to determine exactly what action to take (or not to take). The checklist helps us determine the probabilities, risk and reward. Here is how some of it can work:

Downtrend:

Scenario 1- Gap up into an objective supply (resistance) level
In a downtrend, selling short on a gap higher into supply is likely the highest probability trading opportunity there is. This is because only your most novice trader would buy after a gap up in price, into a supply level, and in the context of a downtrend. Therefore, we want to be the seller to that buyer which means the odds are stacked in our favor. This type of gap is likely to get filled very quickly.

Scenario 2- Gap down into an objective demand (support) level
One might think a gap down into demand is a buying opportunity right on the open of trading each time we see it. However, when we consider this action in a downtrend, this trading idea becomes a bit lower probability. While this gap is likely to fill and almost always does, it typically takes a bit longer than gap scenario #1.

Uptrend:

Scenario 3 – Gap up into an objective supply (resistance) level
This gap up into supply is a trading opportunity that we consider shorting as long as the risk is low and reward (target) is high. However, this is not one of our highest probability trading opportunities because we are shorting in the context of an uptrend. This gap will typically fill within the day or soon after, but the higher probability gap trade to take in the context of an uptrend is scenario #2.

Scenario 4 – Gap down into an objective demand (support) level
In an uptrend, buying on a gap down into demand is likely the highest probability trading opportunity there is. This is because only your most novice trader would sell after a gap down in price, into a demand level and in the context of an uptrend. Therefore, we want to be the buyer to that seller which means the odds are stacked in our favor. This type of gap is likely to get filled very quickly.

If you have not figured it out yet, the key factor in determining which gap scenario offers us the greatest odds is a direct function of identifying who is making the biggest mistake. Someone buying a gap up, into supply (resistance), and in the context of a downtrend is making a very big mistake which means they are buying when the odds are stacked against them.

Therefore, we want to take the high probability trade and be the seller to that novice buyer and bet on a downside move. To summarize, the two highest probability gap trades are selling short when there is a gap up into supply in a downtrend and to buy on a gap down into demand in an uptrend. Of course, there is a little more to it than that when it comes to the exact entry. With any of these scenarios, the risk must be low and the reward must be high and this is objectively determined off of the price chart alone.

Sam Seiden can be contacted by email at Sam Seiden

Sam brings over 15 years experience of equities and futures trading which began when he was on the floor of the Chicago Mercantile Exchange. He has traded equities, futures, interest rate markets, forex, options, and commodities for his personal interests for years and has educated hundreds of traders and investors through seminars and daily advisory services both domestically and internationally. Sam has been involved in the markets since 1991 both on and off the floor of the Chicago Mercantile Exchange. He has served as the Director of Technical Research for two trading firms and regularly contributes articles to industry publications. Sam is known for his trading, technical research, and educational guidance.Points of interest:• Chicago Mercantile Exchange Floor• Author of Market Advisory Letters• Fund Manager/CTA• Speaker to Investment Groups, Universities, and Private Seminars• Contributing Author for Stocks, Futures, and Options Magazine, Active Trader Magazine, and Futures Magazine• Trading and Investment Conference Speaker

Sam brings over 15 years experience of equities and futures trading which began when he was on the floor of the Chicago Mercantile Exchange. He has tr...

neil

Legendary member
5,167 744
We've just published a new T2W article called "Is Trading Gambling ?" by Sam Seiden.

Quick Summary: Sam Seiden talks through the much discussed issue of whether trading is gambling and why it may be different depending on what type of trader you are.

PS. Don't forget to rate the article after you've read it and share your comments on this thread.
T2Win is getting as bad as the BBC (Repeats):LOL:
This subject has been, for some time, the subject of another thread on this site:rolleyes:
 

ilir.shkurti

Well-known member
259 2
Great article

Having been a full time trader for over two years, your premise question haunted me for a long time. Anytime a friend would state that what I did was gambling, I would work myself into a frustrated explanation as to why it is not like at the casino, but how it is as much of a gamble as any business, with varying odds. I have gotten better to get over at the protectiveness of what I do, and I am a lot more quietly "abiding" to people's perceptions, especially when wrong ones are not of consequence to me.

Gap comprises the bulk of my trades, and you are right: gaps are not all the same. Support and resistance are key variables, as are (to me) gap size and profit target.

Being a member of several trading boards (including this one), I get asked, A LOT, what my system is, and if I can give it away piece-meal. I am amused by the number of people that are willing to believe the existence of a "holy grail" in the absence of real work.

Great article, very relatable.
 

natureboy

Established member
770 2
Trading CANNOT be gambling. Reason -> In Gambling you bet before the event ONLY and then you are stuck until the end of the game. In Trading, you can get in and out any time you want.
 

pboyles

Legendary member
8,072 1,301
Trading CANNOT be gambling. Reason -> In Gambling you bet before the event ONLY and then you are stuck until the end of the game. In Trading, you can get in and out any time you want.
In-play betting?
 

natureboy

Established member
770 2
oh.. never heard of that. there goes my theory. I was thinking horse races (i'm in Kentucky). Aren't most gambling games not in-play betting though?
 

pboyles

Legendary member
8,072 1,301
oh.. never heard of that. there goes my theory. I was thinking horse races (i'm in Kentucky). Aren't most gambling games not in-play betting though?
Dont know much about it but I understand you can now enter a bet at pretty much any point of a game/race. I'm guessing its only workable online and being in the US you're not permitted to do any sort of online gambling.
 

natureboy

Established member
770 2
Dont know much about it but I understand you can now enter a bet at pretty much any point of a game/race. I'm guessing its only workable online and being in the US you're not permitted to do any sort of online gambling.
The only constant is change! thanks for educating me. In that case, the parallels between trading and gambling are getting EXTREMELY close - just no free OTC drinks
 

francisfinley

Established member
900 46
2 pages?

this would have done suffice sammy....

a proper haircut and

"yes".
 

timsk

Legendary member
6,921 1,799
I don't mind that day trading gets bad press. It's probably a good thing in the main, as very few people are really cut out for it and if an article like this one helps to prevent a few more lambs being slaughtered on Wall Street's alter at the hands of Goldman Sachs and Co - then I suppose it's a good thing. However - for someone who is described as the 'financial markets reporter at USA TODAY', Mr Krantz' understanding of his subject isn't just wafer thin - it's positively alarming.

For example, he writes: "In my mind, a day trader is an individual who tries to make fast money by buying and selling stocks, options or other securities after holding them a few hours, days or weeks."Er, no Mr. Krantz, 1 out of 3 at best - there's a clue in the name: day trading! He goes on to say: "Unlike investors who buy diversified baskets of stocks and hold them for a year or more despite short-term swings in the market, day traders try to profit from those swings by buying low and selling high." Oh please, do me a favour - where does he get this from? Utter bollox!

The only good thing I can say about his exceptionally poor article is that if that's the standard of journalism required to get a job on a national rag like USA Today, I ought to be able to walk into a job at the drop of a hat!
:cheesy:
Tim.
 

kinetic

Newbie
3 0
The post above quoting about "a basket of diversified stocks" etc - why some people think this is necessarily prudent I'm not sure. In a bear market a basket of diversified stocks is still likely to plummet in value.

Investing (in anything), trading and gambling all share many characteristics. I think the issue comes in people's definition of gambling. It is often seen as a random or biased selection/bet with the hope that you profit from it.

Sports betting is as scientific as trading. We are managing risk, reward, position size, capital. You create a system and have expectancies for that system in terms of strike rate and returns. And, as pointed out by pboyles, in-play betting means that positions can be exited at any time.

It is all speculation and we get as many factors in our favour as we can to make long-term profits.
 

Nut

Active member
131 6
Re : Is trading gambling

Over complicated Sam, a gamble is something the punter cannot intervene to stop once the wheel has spun.

A trader can intervene at anytime to limit any loss/gain.
 

Fl3tch3rb0y

Junior member
23 3
Trading, Gambling, does it really matter what label we give it. At the end of the day if your account is still alive and profitable after say ten or twenty years then its suffice to say that your a trader and not a gambler. Then again if you still need to trade after twenty years like myself, never making massive bucks but never going bust then am I taking enough risk? am I gambling enough or is it simply because my account has never been as large as I would have liked ?
 

goodbalance

Newbie
0 0
ESL TRADING SOFTWARE

Great article, I am often faced with the same statement. I have to agree with Nut in that there is always an intervention or ways to limit potential loss. I personally trade using ESL Trading Software which is a great platform and allows for trailing stops and similar mechanisms to shape each trade and manouvre easily when necessary. I also think that a very specific strategy can be applied to trading whereas a winning formula in sports betting and the like is much more down to luck.