A beginning trader who has no knowledge of the market has the tendency to jump straight into trading every time he opens the chart. I myself had experienced this when I started trading in the Forex market. Anyone could be tempted into trading right away because of the ease of using the Mt4/ Mt5 trading platform, you just to have to enter a position size and click either the bid or ask.
Forex is also open 24 hours and 5 days a week MEGAGAME. Some brokers offer 24/7 and because of the tight competition of brokers, some even offers to let you open a trading account as low as $5. To some people, it’s just like a casino on your laptop, you will be able to place a bet anytime and everywhere you want. These are some reasons why most people thought trading is a form of gambling. Let’s try to discuss what are some pros on gambling, but cons in trading in order to clarify the difference between these two.
In gambling, a gambler has no means of analysis in a game in order to have a better chance to win. You only get to place a bet and start gambling right away. That’s why you always have a 50/50 chance of probability in winning a game in gambling.
In trading, You have two types of analysis, Fundamental and Technical analysis. In fundamental analysis, a trader must analyze the economy of a country, GDP, inflation, growth in jobs and the central bank’s interest. This requires a lot of time in order for a trader to make a decision to start a trade on a currency pair. This kind of analysis combined with technical analysis is always used by large institutions as they handle billions of dollars in their portfolio.
In technical analysis, traders use a chart as the main tool to analyze the market. This tool shows the historical graph of the price movement of a currency pair which shows some patterns to which where the price would possibly go. Within the chart are tools like price action, trend lines, Fibonacci retracement levels, indicators and etc., are combined to find the confluence zone (an area in the chart where indicators meet at a certain point) to further raise the probability of winning a trade. This kind of analysis is often used by retail traders. That’s why as a trader, you have to analyze first in order to have a better edge in the market and have a higher probability of winning a trade or else you will be like a gambler.
In gambling, you don’t need patience. Why? Games like poker, slot machine, and other casino games do not last for hours or days. You just watch the game for a few minutes and after it, you either win or loss.
Forex market is the most volatile market due to the high trading volume and liquidity, the prices move up or down in just a matter of seconds. People without patience won’t be able to stay in an open position for a long period of time. In trading, there are four styles of traders. Position traders which last for months up to few years, Swing traders which last for days up to a few weeks, Day traders which last for minutes up to a few hours, but does not hold any overnight positions and Scalp traders which only last for few seconds to a few minutes.
As a result, most beginning traders are likely to choose to be a scalp trader who scalps on the lower time frames like 1 minute or 5 minutes but has the highest chance of experiencing a market noise. Most of the time he will get stopped out if a news comes out. Traders without patience often close their position if the market starts to move against them even if their stop-loss has not been hit by the market price yet. When the price starts to continue on its trend, the trader will realize that if he only been patient enough, he should have gotten a better trade. That’s why trading requires a lot of patience in order to be a consistently profitable trader.
All games in gambling require a little discipline only for the game poker does not. In trading psychology, poker is always compared to trading. Professional poker players require a great discipline in order for them to be a consistent winner. Maybe if you want to be a gambler, I suggest that you should start a career in the game of poker. It has a higher probability of winning a game than the other casino games.
Great discipline is the hardest to achieve. Only a few people with a great willpower will be able to do it. Often times a trader plans his trade for a few hours, but later if someone tells him a good trade or he found a better trade, most of the time he will not trade what he had planned to trade. He will likely follow the one that he was advised to trade. Or if that trader has a system that requires him to only trade twice a day, even if those 2 trades are losses then he should not trade anymore.
But often times, when a trader loses a trade, he will most likely revenge on his next trade and will forget to follow his daily rules. If you want to be the successful trader like everyone dreams of, you really need to practice a great discipline. As the good ol’ pros always tell, “Plan your trade and trade your plan.”
To sum it up. Gambling is for those people who want to have a good time and has a lot of spare money to gamble with. While trading is for those people who are serious about making money and are disciplined enough to place a trade.