InvestorQ : Do I need to really worry about the difference between gambler and trader?
Mahima Roy made post

Do I need to really worry about the difference between gambler and trader?

Answer
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simran Kaur answered.
2 years ago


Actually, this difference is very important. In a way, most market watchers do not distinguish between a gambler and trader, since they both operate on uncertain outcomes. But the difference is the key to understanding the success of a trader. We have seen traders who keep buying deep out-of-the-money options since losses are known and limited. That is a myth. Over a period of time losses add up and deplete your capital. A smart trader would never follow this logic.

Let us take the case of deep OTM options. Buying deep OTM options because they are cheap or buying penny stocks just because they are priced cheap is living in a fool’s paradise. These are typical of a gambler. A gambler keeps eroding a small part of his capital regularly hoping that one day the uncertainty of the dice or the slotting machine will work in his favour. It rarely happens. A trader or an investor should never undertake even a basis point of risk, unless there is clarity on the probability of outcomes and the returns.