Online stock trading is a market that’s rife with opportunities. There are companies whose stock has grown by leaps and bounds while there are participants who’ve made their name & wealth by trading.
Yet, those who look to reap the rewards of the stock market are not guaranteed anything. Companies blow up. Traders blow up. Some end up chasing the wrong goals. Others make ill-informed decisions.
These facts have led to many people wondering “Is trading gambling?”. Let’s evaluate this question by examining the discipline of trading while confronting harsh truths.
What is Trading, Really?
Trading is the discipline of buying and selling a financial instrument like stocks, futures, options, commodities, and currencies with the view of making gains.
A trader makes these buying and selling decisions based on a thorough analysis of the financial instrument, the broader market, or both.
The type of analysis that traders rely on is known as Technical Analysis.
Truth be told, financial instruments and markets carry a degree of risk, unknowns, and unpredictability that requires a nuanced approach to understand and even benefit from.
Think of technical analysis as this exact nuanced approach that combines the various pillars of mathematics to help a trader make buying and selling decisions.
The degrees of risk are brought down by the availability of past information. At times, a trader may have years if not decades worth of information to turn to.
Yes, the information is from the past and doesn’t guarantee anything for the future. But financial markets and underlying instruments are known to follow patterns.
Technical analysis is used to identify these patterns. Technical indicators are one of the best tools in the world of technical analysis.
There are 100s of technical indicators built to achieve multiple goals. Some allow traders to evaluate the flow of money into an instrument. Others focus on volatility, volume, or price action.
Why Trading is Not Gambling
By now, you must’ve formed a basic understanding of trading. Simply put, a trader works on all available information to plot their next move, right from what to buy/sell to how much to buy/sell.
Unlike gambling, trading is not determined by a roll of the dice. That is, trading isn’t based purely on chance. There are certain outcomes that are known, and certain outcomes that are obvious.
For example, the stock of a company that posts stellar earnings is likely to shoot up once the news breaks.
Other times when the market is trending downwards and sideways test the discipline of a trader. Only those who have a disciplined approach and battle-tested strategy can come out stronger.
Furthermore, gambling’s get-rich-quick mindset does not apply to the stock market. Every seasoned trader knows that profit targets should be realistic and measured (ranging from 1% to 4%).
Take lottery tickets, as an example. They’re one of the most popular forms of gambling, one that a lot of people engage in. Lottery tickets work on chance alone – nothing else.
If you win, you win big. If you lose, you get nothing. There’s no methodology for buying a lottery ticket. Buying a stock is not similar to buying a lottery ticket.
A trader who takes a position on the stock does so based on their trading system and trading signals. Good traders have a target for the upside and limit the downside by using features like Trailing Stop Loss. There’s method to the madness, so to say.
Is Trading Gambling?
No, trading is not gambling. Instead, trading is an information-driven discipline that requires a mix of battle-tested strategies coupled with the right trading psychology.
Furthermore, trading is not a ticket to becoming rich overnight. Instead, it requires a measured mindset toward reaping profits and managing losses.
What’s important to note is that the market carries inherent risks that are driven by various factors. Traders who acknowledge these risks and know how to manage them are likely to excel.
Thus, the answers to these questions like “is share market gambling”, “is options trading gambling”, and others are simple – markets and trading require knowledge, nuance, and management.
Want to know what trading really means? Watch the following video. You’ll be amazed!
