Is Day Trading Gambling?

This is a guest post by Jason at ChartShark.com

There is quite a bit of debate in the financial world as to the placement of day trading in the grand scheme of things.  There are some who rely solely on day trading as their investment strategy, while for others it is an integral part of their overall process.  There is another camp who denounces day trading as a get rich scheme for gamblers and degenerates.

I take a bit of offense to the opinions of that last group; I mean I am a gambling degenerate, but I keep those activities separate from my day trading.  First off, gambling, in its most general sense, is the process of risking money (or car, thumbs etc.) on a specific but unknowable outcome.  Day trading falls into that category, for sure, but so does most people’s idea of investing in securities.  I have come across many levels and types of traders and investors, and few of them have the traditional idea of investing in mind.  I consider traditional investing to be about really caring for a company, and placing your money with them for the long term growth and gains.  If you sell short, you are not in this category.  As a matter of fact, most investors aren’t.  They place their money, according to their risk tolerances, with whatever they think will give them the best return.  When they’ve milked that investment for all its worth, they sell and move onto the next one.  Any investor that is in it solely for the money, without regard to the source, is a gambler according to the above definition.

Unfortunately, I understand where people get the idea of day trading being a get-rich-quick scheme for sucker gamblers.  It’s because it’s very easy to make it look easy.  A good day trader can post videos on Youtube of him making thousands of dollars in seconds.  They make it look simple, and they make it look like anyone can do it. They fail to show the thousands of dollars they’ve lost in the process of learning, they don’t show the years it took them to be consistently profitable, and they rarely post videos of their losing trades; and they have plenty, trust me.  Day trading is the riskiest form of trading, especially for someone knew to the game who has no idea about proper risk/reward calculation, but thinks they know it all because they watched a hundred trades on Youtube, or they attended some trading seminar in a hotel lobby.  In the hands of the wrong user, anything could look like a gamble.

The main thing this argument boils down to is perspective.  For the person who wants to get rich overnight by trading an hour day, day trading is going to be an expensive gamble.  They have a short-term and narrow vision of what it’s going to take to be successful, and they are going to fall into the quick-fix gamblers mindset.  They will begin to take trades they shouldn’t, lose more money than they should, and wind up broke and claiming that day trading is only for gambling fools.  For those with a broader perspective, there is a lot of money to be made day trading.  Like anything in life, if you set goals and take the steps needed to reach them, you’re going to be successful.  Don’t plan to get rich overnight; you shouldn’t even plan to be profitable for many months.  If you can handle that, and you stick to a plan, the profits will come.  One of my day trading secrets is that success is all in the perspective of the trader and it will make the difference between a day trader and a gambler.

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Jason has been studying day trading for over 5 years, and you can find more of his writings at ChartShark.com, subscribe to his RSS feed, or follow him on twitter @ChartShark.