Day trading, which refers to buying and selling stocks or securities on the same day, is often compared to gambling. Investing as a whole is compared to gambling as well. Both investing and gambling technically have the same aim: to gain capital. However, there are some very important distinctions between the two. Gamblers bet their chances on dice throws and slot machine reels. The winnings are almost entirely based on probability. Investments, on the other hand, do not generate results based on chance alone, though it may appear as such. An investor can easily be distinguished from a gambler by the amount of time spent evaluating risk. Gamblers typically do not evaluate the risk on bets they place, preferring to rely on chance alone. Professional investors actually research the securities and assets they trade, and as a result, investors can beat the odds with knowledge and avoid securities that are bound to lose money. Day traders often deal with the question, do I know which penny stocks to buy? They are the cheapest stocks money can buy, and because these stocks are traded within a single day the line between a gambler and a legitimate investor can sometimes be blurred. However, the most successful day traders are investors first and foremost, who take time to research even a stock listed under a dollar. Some day traders may approach the market more like a gambler.
Signs of a Gambler Posing as a Day Trader
Gamblers are infamous for having certain traits that attract them to betting games even at the risk of losing money. Gamblers are obsessive and easily thrilled by the danger of the game. Day traders who possess similar qualities may trade stock much like a gambler and less like an investor. Traders who generally approach low-grade stocks based on gut feelings and popular opinion are essentially gambling. If the trade is made in “hope” of a return, then that is not a legitimate investment. An investment is not reliant on probability alone. Traders who function like gamblers do not stop themselves to evaluate a loss, rather, even losing may seem exciting, encouraging the trader to keep making trades that result in a loss.
Signs of an Actual Day Trader
Professional day traders do not buy or sell stocks “to win.” The most successful day traders vigilantly study the stocks and companies, no matter how cheap the securities are. Professional day traders do not purchase stock on a whim or merely believe they would win against all odds. Legitimate day traders often spend hours analyzing profit histories and running background checks on companies. Unlike with gamblers, the prospect of loss does not excite professional traders. The pros understand the risks involved and do not underestimate the odds.
How to Day Trade Like an Investor and Not a Gambler
Gambling with the market rarely leads to anything good. If you want to make money day trading, you need to shed any gambling tendencies and focus on investment aspects. Research is absolutely crucial to succeeding as a real day trader. Spending time investigating companies the stocks come from will protect you not just from terrible losses, but also from scams.Avoid any impulsive need to keep buying with the hope of hitting the jackpot. The market is hardly a slot machine. Once you are ready to trade and understand all the risks involved, then you can become a legitimate day trader who is more likely to make money than lose it.