InvestorQ : InvestorQ-Ask,Answer & Share All About Finance!
Siya Saran made post

How can I act more like a trader and less like a gambler?

Answer
user profile image
Angel dcosta answered.
2 years ago


You need to tune your trading approach more like a trader and less like a gambler to make it more sustainable and long-lasting. At the peak of the market correction in 2008, gamblers were buying call options on specific stocks hoping for a bounce back. Sadly, it was the peak of a bear market and the bounce never came. Most gamblers were happy that they lost just a small premium on these options. That is not the way a trader would have seen it. The risk return trade-off was strongly in favour of buying puts and the gamblers were buying calls because their focus was on the small loss. For the gambler, the small loss was justification enough. A trader would rather take a bigger potential loss if there is promise of more lucrative returns.

The difference between a trader and gambler is critical to understanding the dynamics of the market. The gambler tries to bet on uncertainty. A trader focuses on how best he can manage risk. The gambler is reconciled to the fact that he has no control over the outcome. The trader typically operates with a Plan-B in place. A trader is obsessed about preserving his capital. A gambler does not care as long he can live in the mirage of small losses. This difference lies at the core of being a smart trader. This difference is critical because more often than not, traders tend to behave like gamblers with disastrous consequences.