Prior to trading, my career revolved around construction, development and real estate. A very well known architect in the history of my area was a guy named James Gamble Rogers. I spent some time studying his work, even lived in one of his houses. It is a name that I had not thought of much in the past few years though, until today.
I recently had a chance to show a friend my current chart setups and went through with him step-by-step how I watch for certain things in various timeframes, bar types, indicators, etc. After a 10 minute discussion, feeling like I had just proven beyond any shadow of a doubt that I had a valid “edge” and thus my trading seemed like sound business, my friend said to me, “No, not for me. It looks too much like gambling”.
What occurred to me later, was that for us to pursue the business of trading, a game of odds and probabilities where you most certainly will at least occasionally lose money, we most likely must start with somewhat of a gambler mentality. Yet, to achieve long term success in the trading arena, you cannot be a gambler. You must become a Trader.
So, the irony lies in the fact that; one would most likely never become a trader if that person were not first a gambler, and yet one can never enjoy lasting success unless they stop being a gambler. And that, quite possibly, is why most traders fail. They give up, or run out of money, or both, before that transformation has time to happen.
Have patience, study, practice, know your trade, know your market, know yourself.
Gamble. Great name for an architect, not so great for a trader.
Good Trading, Stay Safe!
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Wow, my thoughts, EXACTLY. There is the addiction to gambling, while bad, is definitely what I started with. There is a very interesting web page on gamblers anonymous that states that, just like alcoholism, there is no cure. That is rather discouraging. So then I figured that SOME people must be able to change enough to be able to deal with it. Now I think that maybe a small percentage can, like under 5%. Perhaps the 5% who eventually "make it."
There are so many differences between gambling and trading. However, those differences are mostly between the gambling trader and the methodical trader. It's not the game that changes.
My start in trading was somewhat the opposite. I felt the stock market was far too unpredictable, out of my control, subject to too many unknown events and reactions to news. Prior to a few years ago, I would have never even tried trading. Too much like gambling.
I invested in real estate. Not very fast, a lot of hard work, but it had "proven" to always be a "safe" investment, and go up over time. Who didn't know that? As a developer I was more a numbers analyst than anything, and looked at sometimes what felt like 100 deals to choose just one. I was ultra-conservative in my approach, except for the fact that I did use leverage. Intense leverage by what I understand today. I once borrowed over $2 million with only 5% down (and 30% pre-sold contracts, A&D loan). 20 times leverage. And it worked quite well for me until the shift in Orlando real estate values...
What I learned;
1) Correct use of leverage can make a lot of money in a relatively short amount of time. I started with a $10,000.00 loan and 7 years later had over $1 million in the bank, and kept going for another 5 years before things turned.
2) EVERYTHING has risk, and risk is amplified when you use leverage. I had roughly 90% of my net worth in real estate deals in 2005. And banks were willing to let me keep going. When things turned, my "equity" is the first value to go.
3) Careful observation will tell you when to get in and when there are danger signals, particularly if you learn what you are watching for.
4) Timing is not necessarily "everything", but it is extremely important as it relates to the time value of money. I can buy and hold stocks, and possibly over time realize a good return. Or, I can sit outside the market and wait for select entries. Both have put my money at risk, but one keeps it ready to perform.
Trading and gambling are not the same thing. Trading is almost entirely reliant on odds and probabilities, but so is insurance underwriting. Insurance companies really have to know their markets, define their risk, and operate with proper capitalization. I was living in Florida around the time of Hurricane Andrew and my carrier pulled out of the state, as did many others. Not all succeed, and there are always lesons to be learned. Regardless, insurance companies are viewed as "real" businesses.
Become an expert at "underwriting" the markets and you can become one of the top 5%!