The Best Strategies for New Day Traders, and are Traders Gamblers?
People often look for new ways to invest money, or to try and make a quick return on their capital. Some people like to play the stock market, and as the recent Reddit story showed, there is huge interest in this area.
What GameStop and Reddit showed is the power that social media can deliver to retail investors. Whereas retail investors are non-professional, day traders can be either.
Mobile apps such as Robinhood are allowing regular people to dabble in day trading from their living rooms or their regular place of work. Simply log into your account, buy some stock, check back later and if the price has gone up, sell it.
While this might not deliver the biggest deals the world has seen, many people are using it to make modest amounts, and for some, it offers an alternative to gambling.
So, is day trading the same as gambling, or can you put into place some strategies that ensure more wins than losses?
Is day trading the same as gambling?
For some people, day trading no doubt offers the same kind of thrill as putting money into a slot machine. If you look at it in its simplest form, then there are some serious similarities between online casinos and mobile trading apps.
Again, at its most basic, they both require you to log in and deposit funds. In the nettikasino, you select a game to gamble on, say slot or poker. In Robinhood or another app, you select which stock to buy and transfer your money.
There are some real differences though. In the online casino, you will play the game through. If it is slots then it is a game of chance, if it is blackjack then you will have some chance to determine the outcome. With the trading app, you can spend time monitoring particular stocks for performance, and you don’t need to sell if they take a tumble. You can wait for the value of the stock to go back up.
One other similarity between the two is that day trading grew very popular during the pandemic, as did online casinos. This came from a need for entertainment, and the hope of making a profit.
What strategies can a new day trader use?
Day traders can invest in stocks or they can try Forex trading also. The rules for both are very similar though.
One thing a new trader must do is set up an account. The minimum amount for a day trader who wants to invest seriously may be around $25,000. But, you must know how much to invest in each trade.
Rule 1 - never invest more than 1% of your total capital in a single trade. This means you can minimize your losses and know that a poor day trading will not impact too badly on your capital. In this regard, it is much like having a betting strategy in a casino and sticking to it.
There are a number of myths about Forex trading and one is that it is just like gambling in a casino. It remains true though, that some things are very similar including rule number 2.
Rule 2 - don’t get emotional. Just as a poker player needs to know when to cut their losses, so does a day trader. All trading decisions should be based on logic and knowledge. This brings you to number 3.
Rule 3 - knowledge is power. Just as you need to understand the rules in casino games, you need to understand when to make Forex trades. Knowing when to trade before or after important financial news is released is one key to making a good trade.
Have realistic expectations and make a trading plan
When you start trading in stocks or Forex, you need to understand that you won’t suddenly get rich. You need to temper your expectations just as someone arriving in Las Vegas should.
The first thing you need to do is to make a trading plan. The best Forex traders might make a lot of losses but still be profitable because they remain disciplined and follow their plan.
Making a trading plan based on market analysis, and risk management means that you will be taking an organized and disciplined approach to trading. The key to being successful here is to stick to the plan.
Avoid averaging down
Like any type of investment, there are considerations to make before you can start Forex trading. One of them is understanding the terms involved, such as averaging down.
This is a strategy used to offset potential losses, and hopefully, increase your profits. If done wrongly or unwisely it could seem a little like a casino player chasing their losses.
If you are new to trading, then here is a simple example of averaging down. Say you bought 100 shares in a particular stock at 50 cents a share. During the day, the shares fall to 40 cents. You then decide to buy 100 more of the same stock, meaning you have paid an average of 45 cents a share. This strategy can work sometimes but it can lead to more losses when perhaps you could have invested the extra money somewhere else.
Why isn’t Forex or stock trading like gambling?
Trading is and isn’t the same as gambling. If you approach trading with a disciplined and methodical approach then you are not gambling. If you feel you must win and keep chasing losing trades while getting emotional, then you are now gambling.
As a serious day trader, you will need to know when to exit from a trade and not lose more money. Traders will lose money but the key is not chasing those losses. You will find very good poker players in an online casino, and this is because they play without emotion, have a strategy, and play with discipline. These aren’t gamblers but players.
Forex or stock day trading can certainly bring some entertainment into your life if you want to do it as something casual. However, it shouldn’t be seen in the same way as playing an online casino. Trading is a job and should be approached as such. By trading methodically and sticking to your plan you might be able to make good trades and a little profit.