Residual Income Secrets

trading profits

 

The tip of all tips is, trading and investing are two very different things. Another tip in this regard is, don’t fall into any trading psychology traps which follow this line of thought.

 

Because so many people first learn trading through various investments channels such as the stock market, they incorrectly associate the two together.

 

The similarity between investing and trading lies in the fact that both require you to risk your money in anticipation of attractive returns.

 

Trading and gambling share numerous parallels, hence the reason they are often compared to each other. These similarities include:

 

• Both can be exhilarating and full of action

• Both can move incredibly quick

• Much is left to chance

• Both have uncertainties such as market trends, weather, political influences, deck of cards, dice and other players

• High risk opportunities

• Distorted judgment caused primarily through lack of emotional control

• A strong desire to beat the house or to beat the markets

• There’s a wager with every transaction

• Most people loose most of their money

 

Is trading really wagering?

 

In one of the older Eddie Murphy movies called “Trading Places”, Eddie Murphy passed a remark, “You’re bookies” when the owners of a commodities brokerage explained how the markets work.

 

Trading is not the stock market and rather that entering into investments, you’re entering into a betting game. Essentially, you’re placing your bets with regards to how you think the markets will behave.

 

Unlike with gambling though, where you’re simply stuck with any bad bets you place, one can more often than not get out of a bad trade simply by trading again. No matter how insane a deal may be, you’ll nearly always find somebody who’s willing to take a chance, being in search of that magical payout. Of course it should be said, it’s mostly newbies that fall prey to such traps.

 

While you can often get out of a bad trade, this is not necessarily a rule of thumb, particularly in a thinly traded market.

 

Let’s face it, anyone can place trades but the real test comes when it’s time for you to be in control of yourself and to keep sticking with your system.

 

Each time you place a trade, it’s much like being in a room full of gamblers. However, because there’s so much hype surrounding trading, most people never see the real true nature of the game.

 

If you’d never gambled before, would you give up everything in order to earn a living with it? Probably not and yet so many believe they can earn a living by trading, even when they have no experience. Unfortunately though, that’s not how it works.

 

Not all gamblers are professional gamblers and not all traders are professional traders. In fact, a large percentage of them are simply trying their luck.

 

According to the dictionaries, gambling can be defined as:

 

1. An act or undertaking which has an uncertain outcome

2. To expose oneself to risk or hazards

3. To become engaged in hazardous or reckless behaviour

 

Okay, now let’s take a look at the definitions of “calculated”

 

1. Determined by mathematical calculation

2. Undertaken after careful estimation of the likely outcome

3. Made to accomplish a certain purpose; deliberate

 

Now let’s see the definitions of “risk:

 

1. The possibility of suffering harm or loss; danger.

2. A course of action involving uncertain danger.

3. The variability of returns from an investment.

4. The chance of nonpayment of a debt.

 

If you want to be a “real” trader, then you’ll need to abide by your rules and you’ll need to stick with your system. Take risks by all means but be sure they are calculated risks and make sure you watch them diligently.

 

Unlike gambling where the outcome of bets is uncertain, for the most part, the outcome of trades is certain, at least for the professionals. These are people who follow their system and who only take calculated risks, knowing all too well that if they enter into a trade without having done the proper preparation, the odds will be stacked against them.

 

The vast majority of gamblers are impulsive which in turn amounts to them acting spontaneously rather than taking calculated risks. Furthermore, the very rarely manage their finances effectively, just as they usually tend to play outside the rules.

 

Lastly, don’t be tempted to act irresponsibly in the search of a cheap thrill as is the case with gamblers. Instead, focus on reality, take calculated risks, and aim for a month on month trading profits.