There have been a number of attempts to simplify trading in the forex market. Though a majority of them have been successful, there is more to trading than simply installing a trading platform, adding funds to your account, and hitting the buy or sell button on your system.
It is not wrong that trading has many times been equated to gambling given the risk and predictive nature of the activity. However, there are some key differences that must be taken into account which will talk about in this article:
Difference between pro trading and gambling
When you loosely define trading and gambling is when the trouble begins. It is particularly true in the case of people who are either not very intrigued or well-informed about the financial markets. So let’s start by defining these two concepts and clearing the air:
Gambling: It is when you rely on chance and hope that you would earn more than what you had invested. It is a game of sorts.
Investing: In this case, you purchase financial instruments hoping to earn a profit.
When we trade, there are solid chances of causing severe financial damage to ourselves. It is a rule-free zone where you only compete against yourself and fight to keep your funds safe. Now you may assume that you are up against other market participants, but the truth is it is just you against you. Only you decide how you will move so as to mitigate risk and earn profit. In such a scenario, it is natural for a human to be tempted to gamble, and that’s where you require a trading plan. Without a plan, trading and gambling turn out to be more or less the same.
Here are some common traits of a gambler as well as a pro trader. Ask yourself, who do you think you are out of the two?
Basic traits of a gambling Forex trader:
• Does not have a trading edge or effective trading strategy
• Works without a trading plan
• Doesn’t bother to have or use a trading journal
• Risk management is not key for them
• Only focuses on profits and rewards
• Undergoes emotional ups and downs while trading very often
• Often holds onto trades hoping for unrealistic profit targets
Basic traits of a professional Forex trader:
• Has a solid and effective trading strategy such as price action
• Has created a Forex trading plan and uses it
• Maintains a Forex trading journal regularly
• Gives enough importance to risk management and has a risk management strategy in place.
• Is not too worried about profits and rewards
• Trades only when they have a trading edge
• Stays calm whether they win or a lose
• Approach trading like a business
Treating Forex as a business
Now, of course, for a majority of people, betting at a casino is gambling, When you gamble at some particular casino games, you should look at it like a business. For instance, it could the same as playing blackjack with a system in place.
A blackjack player with a great degree of card counting proficiency could get an edge on the house quite often. They can win steadily using this strategy and define if they should count one, two, or maybe five decks of cards.
For a forex trader, the same is true: they must have an underlying strategy to use throughout a trading plan.
Next, one should be disciplined about implementing the plan. What follows is a total of the final winners and losers to understand whether they made a profit or loss overall. Now, that is how they use a business-like approach in their trades.
Additionally, when they trade in this disciplined manner, it would automatically lead to the creation of great trading methods that are part of their trading system. This system is so objective that all the risk factors of emotional involvement and gambling are eliminated from their trading.
Certainly, irrespective of these measures, a trading risk that follows the forex trading endeavor because of the movement in the forex market cannot always be predicted.
A checklist to avoid Forex gambling
• Put a cap on how much you trade with real money. Take a break from trading real money to keep emotions under control and regroup properly.
• Ensure that you
- A) Have a trading strategy in place which you are aware would be a high-probability trading edge, such as price action trading strategies.
- B) Completely understand the way this strategy works and are sure that you have mastered it.
• It is important to have a daily checklist or Forex trading plan in place. Ideally, it must be part of your daily trading routine. Jot down your everyday trading routine so that you can follow it every day and avoid going into entering random trades or winging it.
• Make sure there is a proper risk management plan in place which you could stick to since one can never really tell when they come across a losing trade. What this implies is your trading edge is distributed across a series of trades at random. Therefore never think that there will be THAT ONE trade that will be the winner and end up risking more than you can afford to lose.
Keep track of your trades in a journal, don’t avoid it. If there is no trading journal, please make one.
• Put a cap on the trades you enter on a weekly basis. Say you would not place more than trades in a week so you know you aren’t gambling.
• Have faith in your trading strategy and focus on the rewards you could win in the long term. Don’t let the short-term losses put you off track.
• It helps to maintain an emotional equilibrium. Assess how you think and feel when you carry out a trade. Keep your emotions under control and don’t get tempted into trading more than you can afford to lose. Know more scalping policy – multibank group