Is trading really any different from going to the casino or buying a lottery ticket?
As a trading coach, this is one of the most common questions I get from beginners.
And my answer, over the last 10 years, has always been the same. It depends.
Fundamentally, I don’t see trading as any different from gambling.
But there are professional gamblers and there are amateur gamblers.
The pros are the ones who make a living from gambling. Amateurs might get lucky every once in a while, but they’re generally the ones losing more money than they’re making.
Funnily enough, it’s the exact same thing with the financial markets and traders.
But there’s one cool thing about trading. Whether you’re a long-term winner or loser is a choice, it’s entirely up to you – and to you alone – which camp you want to be in.
Of course, everyone will tell you they want to be a winning trader. But the unfortunate truth is that not everyone is willing to put in the time and the work it takes to become a winning trader.
Over the next few days, I’ll leave you with my personal roadmap to become the kind of trader you want to be.
It’s my firm belief that just about anyone can consistently make money from the markets if they have the following things…
Finding a Pattern Gives You an Edge
Today we’re going to focus on the importance of having a defined edge. Your edge as a trader is an advantage you can clearly identify that is likely to result in a winning outcome.
For example, your edge could be as simple as a specific chart pattern you know inside and out.
And if the market isn’t setting up according to that chart pattern, then your edge isn’t there. Which in turn means you shouldn’t be trading.
But once you see that chart pattern, then your edge is present, and you can trade.
This is where the difference between a pro and an amateur should start becoming very clear.
A pro will only trade when and if their edge is present. If their edge isn’t there, they can’t trade.
And yes, sometimes that means the pro is going to miss out on a big move. Just like how sometimes an amateur will leave the casino having won a jackpot.
The difference is the pro isn’t relying on luck to make their money, while the amateur is.
It’s why there isn’t a single professional trader I know that’s currently getting involved with GameStop, while plenty of amateurs are.
The amateur traders are hoping to hit the jackpot… the pros are steering clear because they can’t see an edge that tips the odds in their favor.
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Being able to clearly state what your edge is and how you will trade is absolutely crucial to being a consistently winning trader.
If you can’t identify your edge, take a step back from the markets. Focus on past winning trades you’ve had and look for commonalities between them.
If there’s a pattern in your winning trades, take note of it and see if you can replicate it over and over again.
If you can, then there you go – you have an edge.
But as we’ll explore shortly, an edge is useless without discipline and risk management. Stay tuned for more…
Happy trading,
Imre Gams
Analyst, Market Minute