The other day, I was spending time with a friend that I have been close with since we were children. For years, anytime my career has come up in conversation, he insists that my trading career is nothing more than gambling. At trading events, I often get asked if I think there is any difference between trading and gambling. 

Whether you are a trader, a gambler in a casino, Pepsi buying advertising space on a network, a retail store owner, a casino, a car dealer, a franchise owner, a street vendor, someone who buys and sells things on eBay, and so on, YOU ARE A SPECULATOR at some level.  The trader takes on risk in a market for a potential reward.

The gambler risks a $5 chip on the blackjack table to try and make $10.  Pepsi pays for commercial television time on a network (risk) hoping to see a return (reward) on that investment much greater than the cost of the commercial.  The retail storeowner buys inventory (risk) in hopes of selling that inventory to you and I at a much higher price (reward).  I think you get the point.  If you think of it this way, the real question becomes, “What type of speculator are you?”

Are you the type who only takes on risk when the odds are stacked in your favor, or are you the type that takes on risk when the opportunity “feels right” and “looks good?”  My answer to my friend was simple.  I said, “Yes, trading and gambling are very similar but there is one big difference.  Imagine playing black jack (21) and not having to bet any money until after you see the cards.  After you have seen them, you are able to bet as much or little or even not bet at all.  If you do place a bet, you can then take all your money off the table whenever you want, THAT IS TRADING.” 

In trading, we have the ability to put our hard earned money at risk only when the odds are very much stacked in our favor.  A casino would love to have the odds that the astute market speculator is able to enjoy.

The issue is that most market speculators cannot tell the difference between risk and opportunity.  In fact, most get it completely backwards which is great for the astute market player.  This novice group continuously falls for the many illusion traps in the market that disguise risk as opportunity.  Let’s look at an example of risk disguised as opportunity on Thursday, March 5th.

This is an excerpt from Mar 2009 issue of Trader's Journal. To view the complete article, please click here.