Trading is one of the most exhilarating activities one can get involve with. Each day, each hour, and even each price movement can dramatically increase, or diminish the financial well being of the active market participant. The winnings can be swift and enormous, while the losses (if you are careless), can just as quickly take you out of the game. The potential to acquire fast and enduring wealth, coupled with the strangely exciting possibility during the economic ruin, makes professional trading one of the most desired activities in the financial world.
However, most who make a go at this demanding profession fail. And most of them fail miserably. This hard could reality is due to several reasons, but I would like to point out one of the most damaging of all those reasons. What has guaranteed the failure of countless trading novices is the inability to see the difference between a ‘gamble’ and a ‘calculated trade’.
Loading up on a stock just before the company releases what is ‘expected’ to be positive earnings, and buying into issues that are crashing at the speed of light are just two actions that fit the criteria of senseless gambling. While these approaches can score big at times, their greatest value is in their fleeting entertainment, not in their intelligent approach. They have no place in an intelligent, well-planned trading program. If you wish to be entertained, it is better and cheaper to go to the movies.
If you want to make consistent money in the market, your methods had better be professional and extremely disciplined. It has to leave very little to guess work and hunches, and focus entirely on making 1) objective entry 2) the proper position management (quantity sizing), 3) exit plan before execution.
When you approach the market this way, with a well thought out plan, many of yours plays may lack the excitement of the ‘gamble’ and occasionally they won’t live up to your dynamic expectations. But, as traders with a professional approach, you can be assured that you’ll be around to trade another day, another year, and maybe even another decade. Smart trading involves executing a plan. Gambling is nothing more than buying and selling with little more than the hope that you are right. So it is of paramount importance that you trade smart. You can never lose sight of this fact: in order to win, you must last.
Those who trade smartly last, and those who gamble don’t last. Every trader must learn to recognize which is which.