Detangling the Myth Between Gambling and Trading

“So you’re a day trader? Isn’t this like gambling?”

There’s hardly a trader who’d be happy about this comparison. In fact, depending on their experience, traders might find it somewhere between mildly amusing and outright offensive.

But to be fair to the stereotype, there is a bit of cause for such a comparison—although, like most stereotypes, it doesn’t apply to every trader—or even most traders.  Successful traders who make a living from trading are certainly above such a comparison.

Legitimate traders know that day trading has few similarities with gambling—or at a minimum, there is a propensity for gamblers—or those who have an addictive personality—to be drawn to the profession of trading.  There is the rush of winning, the agony of defeat… yadda yadda.

One noteworthy similarity is that nothing is certain in either gambling or trading. In both, you work with odds; and when you work with odds, certainty is elusive and risk is ever-present. But, doesn’t the same hold true for any business endeavor? No real rewards in life come without real risk.

Still, similarities abound, but if we, as traders, are to shrug off the stink of addiction, we must accept them for what they are, instead of denying what many know to be true.  The real shame of the matter is not the similarities between the two activities, but rather the motivations behind each, and the ability to make rational decisions based on available information.

Myth.  Gamblers rely entirely on odds.

Traders would love to believe this, but it just isn’t so.  Even gambling—and even addictive gambling—has an element of strategy and information-based decision-making (although it is often disregarded in the heat of the moment). Successful gamblers know the odds for every game they play.  Blackjack players can count cards and know what the odds are for every variation of hands.  That’s not true across all aspects of gambling, though.  For example, gamblers who play slots and so on.  People who bet on sporting events often know a great deal about the sport they are betting on.  They know the players, who’re going to be riding the bench with an injury and even the team’s track record against their opponent.  One could reasonably argue that they have almost as much information as a day trader to work with.

And similar to trading, neither activity can actually influence the game itself.  Betting on the Sixers won’t change the outcome of the game itself.  One could argue that huge trades for a small stock might swing the price to and fro.  But, for the most part, changes to stock prices are affected by a multitude of things—each individual trade having a very little effect.


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Fact or fiction? Gambling is an emotional activity. I think that’s a fair statement.  Gambling is very often an emotional activity—and emotions can ruin you, which is what often happens to gamblers. Lady Luck may smile on a gambler, but sometimes she’ll turn, and that’s not conducive to happiness. Unhappy people make bad decisions.  Now, this is not to throw gamblers under the bus.  There are successful gamblers out there who manage to make quite a nice living doing so. (But that pool is a more like a puddle.)  They have a system.  They are not risk-averse.  They make rational choices based on the information available to them.  They lose some.  They win more.  Sound familiar?

But let’s look at some stats, shall we? According to the Wall Street Journal, a two-year study found that over that period, only 11% of casino gamblers ended the two-year period in the black.  Most of which had a net win of less than $150.  OUCH.  $150 net profit over two years… well… sucks.

What’s worse, in that study, only 5% of “heavy gamblers” walked away a winner.  One can conclude from this that the more you do it, the less likely you will win.  These are bad stats, my friend!

But there’s more.  In casino gambling, you’re betting against the house.  And in that same study, 2% of the gamblers made up 50% of the casino’s revenue.  10.7% of the gamblers made up 80% of the casino’s revenue.

The 10% of gamblers who placed the fewest wagers walked away with the most money.  Still, only 17% of those walked away in the black.

In all, the study looked at 4,222 gamblers, and ONLY 7 won more than $5,000.  Meanwhile, over 200 of them lost more than $5,000 (which makes sense, because how else would the house still be a house if the losers didn’t lose more than the winners won?)

So while there may be a handful of gamblers that buck that trend, the statistics don’t lie:  Gambling is a losing endeavor. 

Trading can be a losing endeavor too, if you treat it like gambling.  And many people do, thus the stereotype.

Now before you get all offended, and try to distance yourself emotionally from such a comparison (I can hear you now—“I’m not a gambler! I’m not, I’m not, I’m not!”), I will admit, that being a trader doesn’t make you a gambler.  But you must acquiesce that the two do occasionally overlap, and some traders are more akin to gamblers than they are traders. And some disciplined gamblers are very similar to traders—the personalities are likely similar.  They both have the ability to make rational decisions in risky situations.  They know when to hold ‘em and when to fold ‘em, as the wise Willie Nelson once said (or wait, was that Kenny Rogers?)

So what’s the difference?  (between gambling and trading, not between Willie and Kenny)

Well, gambling has more to do with addiction and entertainment than with rationale and decision-making.  The addictive gambler—and there are a lot of them—doesn’t know when to quit.  They bet more than they can afford to lose.  They hide their gambling activities.  They lie to friends and family about their gambling.  They are often floundering in debt.  They do not have the ability to separate from the physical high that comes from winning.  They crave it, and they want more of it.  Nay, they need it.

But as traders, we should not be all high and mighty, because the profession of day trading is pretty alluring to this group of people—people with addictive personalities.  The rush of that stock doubling or tripling in a matter of minutes.  The excitement of watching that ticker go up, up, up.  For someone with an addictive personality, this could fulfill their needs just like playing the slots would.

But that doesn’t mean all traders are gamblers, or that trading creates gamblers.  No, sir.

If you are a successful trader, you know that every successful trader­—every professional trader, that is—has adopted a self-discipline that ensures emotions are out the door the moment they sit in front of the screens. Emotion has no place in trading, because, like in gambling, it leads to bad decisions and loses you money.

Successful traders also know how to curb their enthusiasm for fast profits. Experienced traders are aware that even though they might be able to make a million in a day, it’s much safer to bet smaller but less risky. For addictive gamblers, this is not really an option, especially when they’re on a losing streak. Slow and steady profits hold insufficient amusement.

Now let’s talk about odds for a moment.  There is an important distinction between gambling (let’s say casino gambling, or betting against the house).  For traders, the odds are fair – the market is not out trying to get them for all they have. For gamblers, it’s different – the casino always stacks the odds in its own favor, at the disadvantage to the billions of millionaire hopefuls. That’s how it makes its profits, by not leaving everything to chance.  Not that there aren’t a few winners here and there, because there are.  But in the end, everyone knows that the house, above all, comes out on top.  Not true for the market.

Traders would be wise to acknowledge that both trading and gambling can be addictive.  For if you are stubbornly insistent that never the twain shall meet, you may be caught unaware.

Trading, like gambling, is risky business, despite the rationality and the facts and figures. There is still risk and if you’re not careful—if you don’t guard against it—this risk can get out of control, going all-in on increasingly risky trades in a bid to recoup the losses incurred when the risk got out of control.  It’s possible that trading could bring to the forefront an addictive personality that already exists.

You might not be able to see the signs in yourself, but your nearest and dearest will notice there is something wrong even without checking the balance of your bank account.

Here are some of the warning signs that will tell you something’s wrong, and are applicable for all addictions—not just gambling.


Mood Swings

Mood swings are an obvious tell-tale sign. When you win, you’re euphoric. When you lose, you slip into the deepest recesses of depression. While mild mood changes are perfectly alright, since everybody is happy when they win and everyone is unhappy when they lose, the addicted brain amplifies these emotions significantly. Addiction can basically cause a manic-depressive pattern of behavior.  Signs of depression include not being able to make even small decisions, not finding joy in activities that previously brought you joy, indifference, social withdrawal, loss of energy, changes in appetite or sleep, or overwhelming feelings of guilt or sadness.



Another clear sign that your work or pastime is turning into addiction is if you start to obsess about it. Now, you might say to yourself, “I’m just driven.”  And that may be.  But it’s easy to tell the difference from standing on the cliff of driven, and falling off that cliff into obsession.  If you can’t talk about anything else but markets and trades, and if you can’t find it in you to enjoy any other activity besides trading, that’s not healthy.  As the chick from Frozen would say, “Let it go.”  And if you can’t let it go at the end of the trading day, and if you find yourself seeking other “highs” when you’ve been brought low by a loss, then it might be time to check yourself.



Trading is a job.  It’s a profession.  There is no reason to hide or to cover up what has been done.  Some of your trades are going to end in a loss.  But unless you bet the farm, that’s okay, and you should be okay with it.  Those around you should be okay with it.  It’s okay because your wins should outnumber your losses.  But if you find yourself lying to your loved ones about your losses, or even your wins, or about how you are spending your time, then it’s a sure sign that you have taken the Nestea plunge off that cliff.


Bailing on Your Plan

Traders have discipline.  Gamblers fly by the seat of their pants.  Have you found yourself abandoning your tried and true trading strategy?  Have you thought to yourself—I’ve had a bad run of things lately, I’m not going to trade this week until I’ve done more research on “X” or until I’ve completed this lesson or that lesson, and then found yourself trading anyway?  If you can’t stick to your own plan and find yourself making impulsive trades that don’t align with your strategy, you might have a problem.


Filling Time

Traders are patient.  They have a system, and unless they spot the exact pattern they’re looking for, they don’t trade.  They bench themselves when nothing is going on.  Do you find yourself trading to fill the time?  Have you thought, “What the heck… nothing else is going on.  I might as well…”?  If you find it impossible to sit out when there are no good trades to be made, you might have a problem.


Financial Hardship/Relationship Trouble

Have you had relationship problems that stem from your trading?  Have you found yourself in serious financial trouble because you traded (and lost) more money than you could afford to lose?  Have you lost a significant asset to trading, such as a house?  Trading is strategic.  Trading occurs with excess funds—not with the rent money that was due last Monday.  Trading doesn’t break up relationships.

Any one of these things on its own doesn’t mean you have a problem, but if you spot a few of them in yourself, it may be time for a cold, hard look at reality.

That said, if you are a trader—or are thinking of becoming one—don’t let anyone tell you it’s “nothing but gambling”. Real day trading is nothing of the sort. It takes hard work, lots of homework and a determination to control emotions: exactly the opposite of the habits of addictive gamblers.

Trade on, my friends, with your eyes wide open, comfortable in the knowledge that the stink of addiction can tarnish the reputation of any career, but it doesn’t mean your career is addictive in itself.  Addictive personalities are just that—they are there no matter what activity is chosen, or however it manifests itself.  And while it may be true that trading often appeals to those with addictive personalities, trading doesn’t create addictive personalities.


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