Gambling? No.

A Facebook friend asked me this morning:

Is trading in the stock market equal to gambling?

You clearly have not read any of my books OR seen my film (www.brokemovie.com)?

I have read your book on turtle trading.

And you ask me that question? What’s wrong with you? 🙂

I am confused actually. Can you please distinguish between the two?

I have done THAT in 4 books and a film! It’s my whole career.

I am asking you this question because these days firms encourage daily trading, high frequency trading, etc. In your book a position can last for months. Rule based trading which deals in positional trades for months is fine. But what about day trading?

Day trading is garbage (my books of course expand that thought out in detail). HFT is irrelevant [to almost all traders and investors]. Read all of my books and watch my film. Let’s start there. Then we can circle back and have a much more meaningful conversation. I like helping people, and I answer questions by the thousands, but I do want readers to do some basic homework.

3 thoughts on “Gambling? No.

  1. Michael,

    Trend Following IS like gambling…the only difference is, we become the casino.

    We don’t predict what’s going to happen on individual trades, but we have an edge that results in gains over the long run. Just as casinos don’t fret over individual blackjack hands but are secure in the knowledge that if enough players play enough hands, the casino will come out ahead.

    And who do we take the money from? In futures (a zero sum gain), we take it from the 95%+ investors who lose because they think they KNOW what’s going to happen from fundamentals, ouija boards, and Bloomberg.

    Similarly, casinos take the money from the gamblers with their secret “systems,” lucky rappits’ feet, and strong gut feel. The losers don’t even know the tables are tilted against them. In fact the brain chemistry of gamblers — and I assume traders — changes to convince a loser that he is, in fact, winning (See CBS “60 Minutes” from last week).

    Cheers.

  2. This is a FAQ straight from our website since we have encountered this a few times too:

    Q: Some people say trading is just like casino gambling. Is this true?

    A: For important reasons there are, or should be, big differences.
    Firstly, a casino never allows you “to let your profits run” when you are right. In trading, a good trader will follow a philosophy of letting his profits run and cutting losses.
    In trading, trends exist, and there is a continuance of a trend which the trader exploits by staying in the trade using a trailing stop. In the casino, every new hand, or spin of the roulette table is a singular event, unaffected by the previous outcome. After every hand you are fully paid out, or fully lose your bet. Each gambling event depends on statistical chance or “luck”. In trading, even though we can’t predict outcomes, the market gives us highly probable clues to the initiation, existence or continuance of a trend.

    There are some traders or trading styles which mirror gambling: taking lucky potshots at the market without a plan, trading without a stop-loss, and taking quick, opportunistic profits. These traders also end up like most gamblers.

  3. Gambling is the creation of a risk for the purpose of making a bet on it; Market activity (trading, investing, speculating …) is the transfer of the risk which naturally arises is a business from those who can’t bear it to those who are willing to assume it in return for the potential to profit.

    If you don’t roll the dice in casino, nothing happens. Everybody keeps what they started with.

    If you farm corn, there is the risk of a price drop leading to financial loss. A farmer will sell futures that allow someone else (potentially) to take some of the profit from his corn. In return, the buyers accept a share of the risk of a loss that if retained by the farmer would put the him out of business.

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