Day Trading Is Not Gambling

There's a Huge Difference Between Them

In The Truth About Day Trading Stocks, I dedicate an entire chapter to the differences between gambling and day trading stocks. Here I recap how they're not the same, and also how they can become the same if you're throwing the rules out the window.

If you were to ask a pro-day trader whether he thought day trading was gambling, he would most likely respond with this question: “Are you referring to when I was an amateur, or to me as the veteran I am now?”

Without any proper training, amateurs are likely to gamble. Gambling boils down to the simple odds of winning or losing, nothing more. Gambling doesn't offer many options while your money's in play. Once you roll the dice in craps, and your bets are on the table, you can only sit back and fervently hope that your numbers land in your favor. You're casting your fate to pure luck.

On the other hand, when day trading stocks, you have many strategic options. If you skillfully utilize those options, your day trading will never be gambling.

Day Traders' Options Not Available in Casinos

• You can add more funds as the stock price increases or decreases while you're still in the trade. Or you can simply wait on the sidelines for lower/higher/more favorable price levels to add to your position (this is not averaging down).
• You can decide how much loss you can tolerate and how much profit you want by predetermining your stop-loss and limit price. You can alter these decisions while in the middle of a trade. Then you can recapture your losses at more desirable levels later in the day.
• You can hold (intraday) your position until your stock price retraces in your favor.
• You can tier into your position until it retraces.
• Finally, there's the option of transparency. You have the ability to view stock charts and Level 2 quote charts. Chart analysis and stock research are key factors in your day trading success. Again, it's all about knowing your price levels.

How to Make Sure You're Day Trading, Not Gambling

• Always predetermine your stop-loss and limit prices before entering each trade. Stick to your original plan.
• Do your homework. Make sure your price levels are correct before the bell rings.
• Only trade in 100-share blocks, and never hold margin overnight on swing trades.
• Don't try to trade on news and/or economic reports; in other words, don't try to predict what Wall Street will do next.
• Never start trading a new stock in large share blocks, like 200 shares or more. Stick to 100 shares per trade on all new stocks.
• If you've been trading in the red for a few days straight, do not try to go big and get your money back. Instead, take a couple of days off from trading and regroup. Also avoid day trading when something in your life is causing bad emotional swings.
• Don't ever trade because you “feel lucky.”

Luck is a gambler's best friend. Not needing luck is the day trader's distinction.

From The Truth About Day Trading Stocks