Are you trading or are you playing? The answer, of course, is “Yes”.
My Webster’s dictionary’s becomes “gamble” thusly: “(vt) to take a risk in order to gain some advantage, inch and, “(n) an act or undertaking involving dewa poker risk of a loss. inch
By these descriptions, if you are a investor you are a gambler. The more important question is, then, are you an absolute gambler (day investor, investor, investor… ) or a LOSING gambler (day investor, investor, investor… )? In one of my recent articles, I referred to an undisciplined, aimless investor as being neither a investor nor an investor, but “simply a gambler. inch What I will have called such a person, rather than “simply a gambler”, was “simply an unskilled gambler (or unskilled investor or unskilled investor). inch
So, what is the difference between an absolute gambler (day investor, investor, investor… ) and a losing gambler (day investor, investor, investor… )? Who is the most successful gambler in a casino? The house, of course. This is because the house has the chances on every game slightly in their favor, they keep their table bets small (even a very large bet for an individual is very small for the casino in relation to the size of their total pot), and they play absolutely without feeling. The house knows that over x number of table bets, if they have an edge in the likelihood of just a small percentage, where x is a very big number, they will come out ahead by a steady and predictable amount. The casino is a consistently winning gambler.
So, what do you as a investor are related to be a consistently winning investor? Recognize that you are playing, and play like the winning bettors play. Whether you are investing in stock, daytrading futures or forex, or trading longer time frames, your investment or trading strategy must have the same important components that winning bettors have in their systems.
Your trading system, whether a day trading system or a system for multiple day trades, or your long term investment strategy, should have the same advantages as the casino owners: Your trading signals combined with your trade management should tilt the risk slightly on your behalf, you should keep your total capital commitment on each trade really small in relation to your total capital, and you should trade entirely without feeling.
In order to provide these important components, your trading system, whether you create it yourself or buy a system “off the shelf”, must have the following characteristics: It must give you clear, objective entry and exit rules; it must give you a general advantage over the market INCLUDING enabling slippage and commissions; and it must be a system that fits your personality such that you can operate it without feeling.
If your daytrading system, swing trading system, or long term investment strategy does not provide these three important components, then you will be a losing investor and an not successful investor. If your system gives you clear entry and exit criteria, changes the odds slightly on your behalf, and allows you to trade objectively and without feeling, then you cannot fail.