The difference between traders and gamblers

This is one of the most important topics that you can study, in my opinion every potential trader must know about it.

It’s really important but, why? We are in the business of making money and we have to learn to manage the risks, in other words, learn how to control our losses in order to be profitable. Unfortunately this is a forgotten matter in the trading Industry, most traders and investors are concerned about doing transactions without even thinking because all they can think about is the size of the accounts and how they can support the highs and lows of their transactions. They only can think of how much money they can bear to lose in a single transaction, this style is what I call “betting”.

When you make a transaction avoiding the rules of money management then you are in “betting mode”, then, you’re not looking for a long term return of your investment, you’re not trying to build a system of dividends return, you just want to catch the big fish and go home.

Accomplishing the rules of money management is a protection for your money and also a way to potentially increase your possibilities to be profitable at long and medium term. Many movies give to the audience the wrong impression that gambling, being lucky or intuition are the only ways to become a millionaire. When I see some of my friends talking about it and being blinded by that illusion I present to them an example, an easy one which I’m going to show you now:

Along the years people have seen casinos as paradise, places for having a good time, fun and the reward they deserve, in fact, there are people who win for real, that’s not a lie, the huge winners do exist. Now this is my question: how do the casinos to continue making money even though there are millions of winners taking the big rewards out of their boxes? The answer is simple as well, although there are a lot of winners, the casinos are more profitable than the gamblers because there are many more losers than winners.

The truth is that casinos are NOT bettors, they are huge and efficient statisticians; they have studied and know that in long term profitability the statistics will overtake the bets profits. They know that if you win in their casino there are also many losers in the other tables, they also know that you’re not going to win always or even constantly by just betting randomly, if you win repeatedly they’ll start to suspect that you’re cheating and they’ll interfere in the game immediately.

Simple but clear, statisticians make money through bettors, and although both of them lose, the statisticians (casinos) have learned to control their money and bettors don’t know how to do that. The secret is to learn how to make the best use of your money and loses, if you learn how to control it you will have a real chance of being a profitable trader or investor.

So, a second question comes to my mind: do you want to be an eternal gambler or a long term efficient statistician? Do you know which of them you want to be? I hope you don’t want to be the gambler which would be a shame. Instead of that you can explore your potential and become the best trader you can be.

Alexis TapiaALEXIS TAPIA
Business Development Manager Tradeview Ltd.

atapia@tradeviewforex.com