To answer the question, is Forex trading gambling, we have to break it down by the very definition of what it is to gamble. But before we do that, I want to share a brief outline of the way I used to think about trading and gambling.
I remember when I first started trading Forex back in late 2007, a little more than 6 years ago. Whenever the subject of trading would come up at a social gathering, I was usually pretty quick to chime in; I was so proud to be a “trader”. Without fail, one of the first comments people would make was,
“Oh, so you must like to gamble”. Or my personal favorite, “You must love going to Vegas!”. Being the naïve trader I was at the time, I would get a little defensive and respond with something like,
“No, not really…trading is nothing like gambling if you know what you’re doing”. Of course at the time I had no clue what I was doing, but that’s beside the point.
Fast forward to today…boy was I WRONG about that statement.
Make no mistake about it folks, trading is gambling!
Here’s what Webster’s Dictionary has to say about the definition of the word “gamble”:
- To risk losing (an amount of money) in a game or bet
- To play a game in which you can win or lose money or possessions
- To risk losing (something valuable or important) in order to do or achieve something
Notice a common theme? “Risk” and “losing”. If there are two things a Forex trader knows, it’s that there’s always risk and you will lose money at some point. It’s simply the cost of doing business as a Forex trader.
So why then do so many Forex “pros” love to tell you that trading isn’t gambling? Or that their new and improved strategy is a sure thing with a 98% win rate? Because they want to sell you their product, of course. They want you to feel like you’re no longer gambling. Because gambling is a bad thing, right? The truth may surprise you.
What is the truth? The truth is that even the “big boys” at the large banks and hedge funds gamble every time they sit down at their trading computer. But (and it’s a BIG but) there’s an inherent difference between how they gamble and how 99.9% of retail Forex traders gamble. It’s a little thing called “probabilities”.
Learn to Think in Probabilities
It all comes down to putting on trades where the probable win is higher than the probable loss. In other words, stacking the odds in your favor. In a previous lesson, I wrote about price action and confluence. The more “Confluence Factors” you have in your favor on any one trade, the higher the probability is that the trade will make you money.
So is Forex trading gambling?
Forex trading is the ultimate form of gambling. We get to review past price action before putting on a trade. Can you imagine getting to see the dealer’s hand before making a decision at the casino? That’s exactly what we can do in Forex.
However, this advantage you’ve been given as a Forex trader will go to waste unless you know how to use it to your advantage. The key is finding the right Confluence Factors that stack the odds in your favor. Here’s what that looks like.
Notice how we’re now in a trade where we have five different factors in our favor. All of these factors mean a higher probability that this trade will make us money, and it did.
- Price action pin bar on the daily chart
- Price is rejecting a key level
- The trend is up
- The moving averages are providing dynamic support
- No immediate resistance to the upside
Let’s go back to the casino example for a second. We can learn something from casinos. The goal for any Forex trader should be to trade their account like a casino owner runs his/her business. Casino owners know they’re going to lose money on some customers, it’s the cost of doing business. But they also know that by the end of the year, they’ll turn a profit because the odds are stacked in their favor.
So start trading your account like the casino owner runs his/her business by using price action and confluence, and begin stacking the odds in your favor.
Oh, and the next time someone asks if you like to gamble, just answer with, “yes, but only if the odds are stacked in my favor”. Then wait for the strange look they give you.
Your Turn
Do you think trading is gambling? Feel free to leave your thoughts or questions in the comments section below and I’ll be sure to respond.