Is Day Trading Gambling? Find Out
Day trading is a popular strategy for trading various financial instruments. Some people treat the style as a professional approach to making money quickly, while some treat it as gambling.
A beginner dreaming of becoming a day trader has many doubts, such as Is day trading gambling? Is it illegal, or is it profitable? And the answer to these simple questions is quite complex.
Thus, in this blog, we will discuss the day trading strategy and find out its effectiveness. But first, let us have a short overview of the style.
What is Day Trading?
Day trading is a strategy of buying and selling a financial instrument with the aim of making a profit from the value fluctuations. The strategy is known as day trading, as traders open and close the position within a day.
In the financial market, the asset price keeps rising and falling based on the prevailing conditions. Day traders keep watch on these conditions and predict the rise and fall of the asset.
When their predictions become true, they profit, and when their predictions are wrong, they lose money. Sounds much like gambling? Let’s explore more.
Here's a quick look at what you'll read
No day trading is not gambling till it follows the principles of Islam.
Yes, day trading is profitable, but the probability of losing money is also there.
Day trading is not illegal. Traders may need to follow certain guidelines for day trading depending on their country.
No, day trading is not a sin but a professional approach to making money.
Is Day Trading a Gambling or a Profession?
Day trading can be a professional way to trade financial assets or even a way to gamble money, depending on the approach. Let us have a look at examples:
Day Trading as Gambling
A person had $1000 and was looking trading opportunity. A friend suggested opening a trade in gold, as gold is all set to rise according to instinct. The person followed what the friend said.
The above case is purely of gambling, as trade decisions are solely based on instinct. The person is actually betting money, and the outcome will totally depend on luck.
Day Trading as a Professional Approach
A trader had $1000 and was looking for a trading opportunity. So the trader started watching the 4-hour chart and applied the Bollinger bands and RSI on it.
The prices were moving near the lower Bollinger Bands and near the RSI line moving near 30. Both the indicators were suggesting that gold is oversold and is expected to rise. Even the fundamental analysis indicators supported the indicator interpretation.
So traders open a buy position in gold. Also, the trader used the risk-to-reward ratio of 1:3 and set the stop loss level.
The above example is purely of day trading and is not at all gambling. The traders organized a proper analysis and followed the proper risk management guide.
The profit potential is high in this case. Even if the market moves against the trader, the loss will be minimal as a proper stop loss is placed.
When Does Day Trading Become Gambling?
The difference between day trading and gambling is quite simple. However, understanding this will make a big difference in your trading profit. Here are the times when a day trading strategy loses its effectiveness and becomes gambling:
No Market Knowledge: Don’t think learning is Important
Day trading is an advanced approach that requires in-depth market knowledge and analytical skills. If you have started day trading without gaining any knowledge. In addition, you don’t even feel the need to educate yourself, then it becomes a way of staking your hard-earned money.
Unrealistic Goals: Overnight Success Dreams
Day trading allows you to earn good profit in a short duration. Many traders have actually made billions of dollars day trading. Seeing such trading success stories, you may think you can become rich overnight. However, many sleepless nights are behind the overnight success.
Trading without Strategy: No Trading Plan
A plan makes the difference between a day trader and a gambler. Day trading requires a proper strategy with clear profit expectations, time frame, risk criteria, and analysis methods. Entering the trading world without a plan is just like entering a battlefield without a weapon.
Guesswork Trading: Instead of Analysis, Instinct Makes You Trade
Identifying buying and selling opportunities requires analysis of market conditions. Professional day traders organize technical, fundamental and sentimental analysis for making trade decisions. But when you make trade decisions based on your gut feeling instead of analysis, it becomes gambling.
No Risk Management: Losing More than You Afford
Risk is a part of trading, and risk is relatively higher with day trading. Taking aggressive risks increases the chances of making big losses. Experienced day traders always have a solid plan to manage risk, and they stick to the criteria.
Lack of Right Psychology: No Discipline and Patience
The trading world generally attracts people who want to make money fast. However, the financial market tests the patience of traders. You need to wait for the right opportunity, follow proper rules, and prepare a trading journal. A person lacking a positive mindset, patience and disciplined approach is a gambler.
Trade Addiction: Trading Turns into Habit
Day trading involves the probability of making money quickly. Thus, the initial profit can make you addicted to trading. Watching charts, looking for opportunities and thinking about trading all the time are the signs of addiction. And this addiction can have a big impact on your mind, and you can even suffer losses instead of profit.
Tips to Make Day Trading a Professional Career
- Before starting day trading, first learn about the financial market and how it functions. For theoretical knowledge, read educational resources, and for practical knowledge, open a demo account.
- Do not let emotions affect your trade. Keep greed, fear, FOMO, stress, and frustration out of your trade.
- Always trade with a logical reason. Don’t place trades just for the sake of placing trades. Always look for a reason that supports your trade decisions. You can even seek the help of intraday signals to make the right trade decision.
- Trade with proper risk management and leverage ratio. Generally, day traders use an ideal risk-to-reward of 1:3 and don’t take leverage more than 1:50.
- If you think that day trading has become an addiction for you, take a break. So you can start with a fresh mind, forgetting about the past losses.
Conclusion: Is Day Trading a Gambling
No, day trading is not gambling; it is a professional career if followed with a proper strategy. You just need a robust plan, a positive mindset, proper risk management, and a disciplined approach.
Day Trading can be a shortcut to success, but only when you have the right knowledge. Numerous day traders are present in the market, but only a few have managed to make day trading a professional career.
We at Carlos and Company can assist you in your day trading journey. Reach out to get in-depth daily market analysis, actionable trade strategies and valuable insights.