GAMBLING AND TRADING – Are SAME?

Day trading is a cousin to both investing and gambling, but it is not the same as either. Day trading involves quick reactions to the markets, not a long-term consideration of all the factors that can drive an investment. It works with odds in your favor, or at least that are even, rather than with odds that are against you.

Investing is slow and steady

Investing is the process of putting money at risk in order to get a return. It’s the way that businesses get started, roads get built, and explorations get financed.

Investing is very much focused on the long term. Good investors do a lot of research before committing their money because they know that it will take a long time to see a payoff. Investors often invest in things that are out of favor, because they know that, with time, others will recognize the value and respond in kind.

In contrast to investing, day trading moves fast. Day traders react only to what’s on the screen. There’s no time to do research, and the market is always right when you’re day trading. You don’t have two months or two years to wait for the fundamentals to work out and the rest of Wall Street to see how smart you were. And if you can’t live with that, you shouldn’t be day trading.

Day trading works fast

Trading is the act of buying and selling securities. All investors trade, because they need to buy and sell their investments. But to investors, trading is a rare transaction, and they get more value from finding a good opportunity, buying it cheap, and selling it at a much higher price sometime in the future. But traders are not investors.

Traders look to take advantage of short-term price discrepancies in the market. In general, they don’t take a lot of risk on each trade, so they don’t get a lot of return on each trade, either. Traders act quickly. They look at what the market is telling them and then respond.

They know that many of their trades won’t work out, but as long as more than half work, they’ll be okay. They don’t do a lot of in-depth research on the securities they trade, but they know the normal price and volume patterns well enough that they can recognize potential profit opportunities.

Trading keeps markets efficient because it creates the short-term supply and demand that eliminates small price discrepancies. It also creates a lot of stress for traders, who must react in the here and now. Traders give up the luxury of time in exchange for a quick profit.

Speculation is related to trading in that it often involves short-term transactions. Speculators take risks, assuming a much greater return than may be expected, and a lot of what-ifs may have to be satisfied for the transaction to pay off. Many speculators hedge their risks with other securities, such as options or futures.

Many people think that trading and gambling is pretty much the same thing – thus very risky! Not only is that assumption false. It also acts as a deterrent, keeping people away from the financial markets. Hence those miss the exciting opportunities that trading offers. This article will examine activities, trading and gambling, and shed light on the key differences.

It’s a matter of fact that investing money as a trader or investor always bears a risk. And so does gambling – not surprisingly. Therefore, the misconception lies on the fact that both actions involve the same risk.

gamble1.jpg

Gambling is nothing more than luck

A gambler puts up money in the hopes of a payoff if a random event occurs. The odds are always against the gambler and in favor of the house, but people like to gamble because they like to hope that, if they hit it lucky, their return will be as large as their loss is likely.

Some gamblers believe that the odds can be beaten, but they are wrong. They get excited about the potential for a big win and get caught up in the glamour of the casino, and soon the odds go to work and drain away their stakes.

gamble2

GAMBLERS might loss to all

Yet examining the strategy of clever investors and traders, it becomes very clear that they have the opportunity to implement risk management strategies. Traders can set stop loss limits in order to well… limit the losses. With gambling it is totally different: One bets on something with a specific amount of money. With that one risks to lose the entire sum of the money with one single bad decision.

trading1.jpg

TRADING provides ownership

Moreover, trading provides ownership over something, ranging from currencies and commodities to ownership in a company (stocks) to which we can add the concept of time and the pay of dividends. The ownership involved in trading will derive in profits if the price of the stocks goes up. The same occurs when the company is profitable and issues dividends. Although the financial markets have fluctuated over the decades, the general trend has been upwards. Furthermore, one of the key elements is to maintain a diversified portfolio, which would be complicated when betting.

Investing represents ownership

Let’s sum it up: There is a similarity between trading and gambling, which is the fact that both activities involve monetary risk at the hopes of increasing future profits. Nevertheless gambling involves no risk management, whereas investing represents ownership over a product, the possibility to earn dividends from companies and implement several risk management strategies.

Sources:
http://www.futuresmag.com
http://www.dummies.com

GAMBLING AND TRADING – Are SAME?

Day trading is a cousin to both investing and gambling, but it is not the same as either. Day trading involves quick reactions to the markets, not a long-term consideration of all the factors that can drive an investment. It works with odds in your favor, or at least that are even, rather than with odds that are against you.

Investing is slow and steady

Investing is the process of putting money at risk in order to get a return. It’s the way that businesses get started, roads get built, and explorations get financed.

Investing is very much focused on the long term. Good investors do a lot of research before committing their money because they know that it will take a long time to see a payoff. Investors often invest in things that are out of favor, because they know that, with time, others will recognize the value and respond in kind.

In contrast to investing, day trading moves fast. Day traders react only to what’s on the screen. There’s no time to do research, and the market is always right when you’re day trading. You don’t have two months or two years to wait for the fundamentals to work out and the rest of Wall Street to see how smart you were. And if you can’t live with that, you shouldn’t be day trading.

Day trading works fast

Trading is the act of buying and selling securities. All investors trade, because they need to buy and sell their investments. But to investors, trading is a rare transaction, and they get more value from finding a good opportunity, buying it cheap, and selling it at a much higher price sometime in the future. But traders are not investors.

Traders look to take advantage of short-term price discrepancies in the market. In general, they don’t take a lot of risk on each trade, so they don’t get a lot of return on each trade, either. Traders act quickly. They look at what the market is telling them and then respond.

They know that many of their trades won’t work out, but as long as more than half work, they’ll be okay. They don’t do a lot of in-depth research on the securities they trade, but they know the normal price and volume patterns well enough that they can recognize potential profit opportunities.

Trading keeps markets efficient because it creates the short-term supply and demand that eliminates small price discrepancies. It also creates a lot of stress for traders, who must react in the here and now. Traders give up the luxury of time in exchange for a quick profit.

Speculation is related to trading in that it often involves short-term transactions. Speculators take risks, assuming a much greater return than may be expected, and a lot of what-ifs may have to be satisfied for the transaction to pay off. Many speculators hedge their risks with other securities, such as options or futures.

Many people think that trading and gambling is pretty much the same thing – thus very risky! Not only is that assumption false. It also acts as a deterrent, keeping people away from the financial markets. Hence those miss the exciting opportunities that trading offers. This article will examine activities, trading and gambling, and shed light on the key differences.

It’s a matter of fact that investing money as a trader or investor always bears a risk. And so does gambling – not surprisingly. Therefore, the misconception lies on the fact that both actions involve the same risk.

gamble1.jpg

Gambling is nothing more than luck

A gambler puts up money in the hopes of a payoff if a random event occurs. The odds are always against the gambler and in favor of the house, but people like to gamble because they like to hope that, if they hit it lucky, their return will be as large as their loss is likely.

Some gamblers believe that the odds can be beaten, but they are wrong. They get excited about the potential for a big win and get caught up in the glamour of the casino, and soon the odds go to work and drain away their stakes.

gamble2

GAMBLERS might loss to all

Yet examining the strategy of clever investors and traders, it becomes very clear that they have the opportunity to implement risk management strategies. Traders can set stop loss limits in order to well… limit the losses. With gambling it is totally different: One bets on something with a specific amount of money. With that one risks to lose the entire sum of the money with one single bad decision.

trading1.jpg

TRADING provides ownership

Moreover, trading provides ownership over something, ranging from currencies and commodities to ownership in a company (stocks) to which we can add the concept of time and the pay of dividends. The ownership involved in trading will derive in profits if the price of the stocks goes up. The same occurs when the company is profitable and issues dividends. Although the financial markets have fluctuated over the decades, the general trend has been upwards. Furthermore, one of the key elements is to maintain a diversified portfolio, which would be complicated when betting.

Investing represents ownership

Let’s sum it up: There is a similarity between trading and gambling, which is the fact that both activities involve monetary risk at the hopes of increasing future profits. Nevertheless gambling involves no risk management, whereas investing represents ownership over a product, the possibility to earn dividends from companies and implement several risk management strategies.

Sources:
http://www.futuresmag.com
http://www.dummies.com

How high frequency trading works?

High-frequency trading is a type of algorithmic trading characterized by high speeds, high turnover rates, and high order-to-trade ratios that leverages high-frequency financial data and electronic trading tools. While there is no single definition of High frequency trading, among its key attributes are highly sophisticated algorithms, specialized order types, co-location, very short-term investment horizons, and high cancellation rates of orders.

what is  HFT?

How it works?

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FIVE MOST PSYCHOLOGICAL EMOTIONS THAT TRADERS FACE IN ENTRY

#1 Traders feels that any amount of Capital is sufficient to trade.

Disadvantages: In the absence of sufficient trading capital, traders may not be able to take all the recommended trades and end up making losses by missing profitable calls.
Advantages : When Traders know about the capital allocation they are prepared to plan the risk amount and have the ability to take all the 10 calls. This increases the probability of success.

#2 Requirement of frequent calls.

Disadvantages: Low quality trades and very less probability of hitting the target and more brokerage generation. Risk reward ratio not at all favorable.
Advantages : Big money is made by giving the right calls and holding. If a call is held for more than 3-4 days then the profit target can be achieved. (Suppose we take 10 trades the maximum loss that we incur per trade is Re1 and min profit Rs2.Now if 6 calls are wrong and 4 are in profit the net profit is (-6+8)=2. Thats with a 40% Hit Ratio.

#3 Traders not maintaining the stop with the expectations that markets will soon reverse from in their favor.

Disadvantages: Will lead to development of bad habits of not cutting losses. This can lead to erosion of capital.
Advantages : The principle tells us that the stop exits.Hence, not maintaining stop can prevent from erosion of capital.

#4 Traders some times feels that stop loss is too big to hold the calls.

Disadvantages: Traders may feel that risk is big because of big stop exit, and may not take good trades
Advantages : No unnecessary loss due to wrong stop as per intraday levels. Better hit ratio in calls.

#5 Traders exits on its own and thus not hold or wait for exits on call given by TheNIFTYFeed Research.

Disadvantages: Traders earns small profit and exit in small loss and does not trade as per right entry and exit. Thus miss out on big profits.
Advantages : TheNIFTYFeed team may experienced that big profit can be made by holding trade for more than 5-6 days and with right stop loss capital will also remain secured. The purpose of the Technical Levels Ladder is to give a trader all the

I’m only rich because I know when I’m wrong… I basically have survived by recognizing my mistakes. – George Soros

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Top 10 Mental Errors That New Traders Make

Experiencing Loss And Profit

Experiencing Loss And Profit

The weakest link to any trading strategy is the trader that is suppose to be executing it. It is usually the mental and emotional errors of the trader that cause the 90% of unprofitable traders to lose money. Trading success is determined more by the mindset of the trader than their skills with math, economics, or macro knowledge.

  1. The ego takes over the trader and being right becomes the #1 priority. This causes the trader not to take losses becasue they don’t want to be proven wrong.
  2. Greed causes traders to trade too big because they want to make a huge amount of money in one trade.
  3. Fear causes a trader to exit to early with a very small profit because they are afraid it will disappear.
  4. Discouragement causes a trader to quit before they have given themselves or their systems enough time to win.
  5. Coat tailing is when a trader follows a guru’s trades instead of learning to trade correctly themselves.
  6. Style drift is when a trader changes their method instead of sticking to it and letting it play out when the right market environment emerges.
  7. Arrogance leads a trader to trade too big and take on too much risk, this usually happens after a big winning streak or out sized win.
  8. Hope is when stop losses are replaced with prayer.
  9. Boredom is a dangerous time where a trader cares more about active trading than making money.
  10. Desperation is a dangerous mental state that leads a trader to make a “Hail Mary Trade”, this usually happens when the trader is in a deep draw down and tries to get back to even in one big ill advise low probability trade.

Trading more than anything is a mind game. If you want to master trading then first master your own mind.

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