Many traders are investing or playing gambling without even knowing it — trading in a way, or for a reason that is entirely dichotomous with market success. Before delving into tendencies in gambling when actually trading, there is one phenomenon among many people before even trading occurs.
Here are 3 points to distinguish between investing or gambling.
1. Social Proofing
Some people may not even have an interest in trading or investing in financial markets. But, they are induced to trade or invest anyway by social pressure.
People are constantly under pressure to adhere to their social group. So they spend so that they do not ignore or neglect the views of others, or feel left out.
If a person trades for reasons of excitement or social evidence, they are likely to trade in a gambling style, rather than in a methodical and checked manner.
2. Gambling (Trading) for Excitement
Even a losing trade may stir up emotions and feelings of power or satisfaction, especially when it comes to social proofing. If everyone in the social circle of a person loses money in the markets, it will allow that person to enter the conversation with their own story by losing money on a trade.
Trading the markets is exciting. It links the person with different ideas, backgrounds, and beliefs into a global network of traders and investors. Yet getting caught in the “idea” of trading, the excitement or emotional highs and lows is likely to detract from systematic and methodical action.
3. Trading to Win, and Not Trading a System
Trading methodically and systematically in any scenario based on odds is important. It appears to be the most apparent explanation for trade. After all, it has no big deal to win the trade.
Better traders are taking several losses – realizing they’re wrong and keeping the harm low. Not having to win on any trade, and taking losses when conditions indicate that they should be profitable over many trades.