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Options trading is gambling

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options trading is gambling

This answer to this question is based on the strategy and investing style of the participant. I can tell you without a doubt that trading in the markets is not like gambling at all. Gambling has a fixed odds system for all major games, while trading in the markets is truly unpredictable. If you are able to exercise extreme discipline and laser focus on your trading strategy, you can profit in the market. However, if you approach the market with random abandonment, then the market can and will cause you serious pain. In this article I will cover 8 areas that can help you recognize if you are displaying characteristics of a gambler and not an investor. If you are day trading in the US, that value is 4-to-1 to cash on hand. Now, if you are day trading, you should be determining your risk-to-reward ratio for gambling trade and applying sound money management principles for each transaction. If you find yourself going all-in on positions, this is a sign that you are taking unnecessary risks for the hopes of a windfall profit. Examples of this would be if you have k cash with k margin and you are using all k for one day trade. Before I would take my position, I would have a sound trading planbut in reality this plan was a cover up for my own need to hit it big. If I am owning it now over a decade later, I was just swinging for the fences because I wanted to break free of corporate America in order to trade for a living. It got so bad at one point that I started to take on large options positions in the hopes of making 5x or 10x my money. Do you find yourself occasionally or worst frequently going all-in on a sure bet? If so, this is a clear sign that you are crossing the line from a savvy investor and characteristics of a gambler. Gamblers will often try to bet themselves out trading a hole, which most times leads them further into financial ruin. You can display similar behavior with the market if you go on a bad run. No matter how good you are as a trader, you gambling encounter dry spells. It will feel like the market is against you and you are unable to pick a winner. Smart traders will either stop trading for a period of time or will start to take smaller positions until they are able to sort through their slump. If you find yourself trading more heavily during a downturn or worst using more money to dig yourself out of a whole, you have now crossed the fine line between gambling and investing. I remember a time where I was day trading and the market had given me a few lumps by 11am. I began taking on position after position, so much so that by the end of the day I felt like I had been through a meat grinder. I think I may have been up or down a few hundred bucks after all that work. I may have had a few days of overtrading on that level afterwards, but if you are becoming somewhat of a gambler, you will notice that the majority of the time you are overtrading. Under no circumstances should you be using credit cards or taking out loans to place money in the market. Think about it, the market already provides you margin which allows you to trade above the available cash on hand. Why would you need to then take out more money? The simple answer is greed and a little bit of stupidity to boot. It is one thing to trading your own money, but you should never allow the market to place you in a position where you are going in debt due to your trading. A major sign that someone is a gambler is when their mood swings start to fly all over the place. The person can be high as a kite one day and then completely depressed the next. This sort of behavior comes from the highs of placing winning bets, only to be replaced by depression from big losers. Trading if not treated as a business can have the same effects on your relationships. You will start to find time with your family as a distraction from your very important task of performing more and more market analysis. Your family will not know which guy they will encounter after each trading day. Some days you are completely normal, while on other days they would rather have dinner with a sociopath versus dealing with you. Trading should have no impact on your emotions. This is always the first sign of a good trader, the ability to stay completely flat in an environment that is filled with raw human emotions such as fear and greed. Trading effectively boils down to a number of fixed rules that govern how you conduct your business. This concept of rules applies to the market, because the market is a living and breathing entity, where no one can predict her next move. This level of chaos can drive a man insane if he does not equip himself with clear boundaries of how to engage with the market. Over time, if you are finding yourself abandoning rules in order to place random bets in the market, you are in trouble. This is a clear sign that you are no longer concerned with establishing a rationale for your trades and have instead opted for the ability to just place trades whenever and wherever you want. This sort of behavior is similar to the gambler who is not concerned with calculating odds, but would rather just stay in the game and place bets. Let me qualify this a bit, because I would say I am one of the most passionate people when it comes to trading, so I get it if you dream about charts at night. Do you find yourself options talking about the market with everyone you encounter? If you find yourself no longer having any desire to enjoy the smaller things in life, you could be heading down the path of losing yourself by focusing on the market so much. This is very similar to the behavior of a gambler who completely shuts out the entire world to focus on their game of choice. Simple tasks like putting your kids to bed or even eating will be too laborious. If you are trading poorly, odds are there is at least one person that will know this fact. Either because you share this bit of information because of your loving relationship and great communication between each other, or they will know because of the shrinking joint account balance. At some point your spouse or close friend will confront you about your losses. This confrontation will likely be awkward as they will not options a firm understanding of how the market works, but options a common sense level will know that whatever you are doing is not working. When confronted gambling trader that is gambling will deny everything no matter what. The gambler will likely take it a step further and begin attributing their market losses to some inefficiency in the market. If really pressed, the gambler will likely act out in such a fashion that the close friend will probably avoid discussing trading or money with them ever again to avoid future conflicts. Does this sound like something that has happened to you before? Are you any different from this fellow? Before you enter each trade, have you determined where you will exit a position if you are wrong? You should at a minimum have a mental stop where you will exit a position if it goes against you too far. You are no longer fighting trading market or making the newbie mistake of letting your losers run way against you. Stops will often be the one thing that separates a winning trade turning into a loser due to some unforeseen even in the market. Stops are the same method that good gamblers use when betting in casinos. They come into the casino with a set amount of money they are willing to lose. Then once up for the day or on a particular game, they have a set amount of money that if they begin to give back money to the casino they walk away. This ability to walk away a winner is the actions of an investor. If you find yourself giving back healthy gains for losses because you are not willing to put in stops, you are just gambling. Hoping for some larger target or profit zone. Most people that trade do so sloppily. Where the line begins to cross between sloppy investing and outright gambling is the frequency of the violations of the questions mentioned throughout this article. You have to be honest with yourself. If you are day trading and violate any of the questions listed above, you will fail at trading. I know that sounds harsh, but it is the grim reality of the market. She has a crazy way of separating people from their money when they act erratically. To see how we can help you options your trading discipline, please head gambling to our homepage and checkout our trading simulator. Learn to Day Trade 7x Faster Than Everyone Else Learn How. Free Trial Log In. Is Day Trading Like Gambling — 8 Signs You have Lost Your Way. What is the Best Online Stock Trading Site? How to Improve your Trade Entry and Execution. Day Trading the Three Bar Reversal Pattern. Categories Candlesticks Chart Patterns Day Trading Basics Day Trading Indicators Day Trading Psychology Day Trading Software Day Trading Strategies Day Trading Trading Futures Glossary Infographics Investment Articles Swing Trading Trading Strategies. Customer Login Sign Up Contact Us. Login Sign Up Contact Us. options trading is gambling

Trading Verus Gambling. What is the Difference?

Trading Verus Gambling. What is the Difference?

4 thoughts on “Options trading is gambling”

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