Is Day Trading a Form of Gambling? (2024)

FAQs

Is Day Trading a Form of Gambling? ›

So, day trading is not gambling, but both often come down to chance and can lead to significant financial losses and problematic behaviors.

If a person trades for excitement or social proofing reasons, rather than in a methodical way, they are likely trading in a gambling style. If a person trades only to win, they are likely gambling. Traders with a "must-win" attitude will often fail to recognize a losing trade and exit their positions.

The overwhelming majority of day traders lose money. While a select few are able to generate steady profits, these are generally people who had careers in the financial industry or who have devoted themselves to studying markets. Successful day traders apply themselves to the practice as a full-time job.

Day trading can be profitable, but it's far from guaranteed. Many day traders end up losing money before calling it quits. Success in day trading requires a deep understanding of market dynamics, the ability to analyze and act on market data quickly, and strict discipline in risk management.

Around 1% – 20% of traders earn a profitable margin at the end of the day. The low success rate often discourages the newbies who learn new ways from an online course or television. Studies have shown that around 97% of day traders have lost their money in two years.

Trading Strategies

Day traders set goals for their trades and regularly review their performance to make necessary adjustments. This level of discipline and structure is not typically seen in gambling, where decisions are often impulsive and based on emotions rather than careful analysis.

Day trading is addictive for the same reason that gambling is addictive, and it has to do with the brain. When a day trader takes a profit, or even gets excited about a potential profit, the brain releases “feel good” neurochemicals such as dopamine and serotonin.

On average, day traders with $10,000 accounts can make $200-$600 per day, with skilled traders aiming for 2%-5% returns daily. So, it is possible to achieve a daily profit of $200 to $600 with a $10,000 account.

Many people have made millions just by day trading. Some examples are Ross Cameron, Brett N. Steenbarger, etc. But the important thing about day trading is that only a few can make money out of day trading and the rest end up losing their entire capital in day trading.

"To survive you have to be a mixture of physicist and drug dealer, otherwise you become a sitting duck." In this high-pressure world, traders turn over quickly. "If you're not producing," says Handa, "you're gone." The average professional life-span of a trader, says Handa, is from 2 to 5 years.

What is the failure rate of day traders? ›

It is estimated that 80% of day traders quit within the first two years, and nearly 40% quit within one month.

It is possible, but it is going to take a lot of time and discipline to build a small account into something that can produce a living. If you want to make some money on the side, you'll still need the same dedication, putting in many months to refine a method and overcoming sabotaging tendencies.

The 1% risk rule means not risking more than 1% of account capital on a single trade. It doesn't mean only putting 1% of your capital into a trade. Put as much capital as you wish, but if the trade is losing more than 1% of your total capital, close the position.

One popular breakout day trading strategy is the ascending triangle pattern, a bullish price consolidation pattern that often appears at a key resistance level. This pattern is often seen as a buying opportunity during an overall uptrend.

Several highly effective strategies that a multitude of traders find profitable include techniques like Scalping, Candlestick trading, and Profit Parabolic.

When you gamble, you own nothing, but when you invest in a stock, you own a share of the underlying company. Some companies reimburse you for your ownership in the form of dividends.

While option trading involves an element of risk, it is generally regarded as a legitimate part of the financial markets rather than a form of gambling. Options contracts have two main components: the strike price and the expiration date.

Day trading is not illegal when it is done within normal trade hours and properly recorded. However, a similar practice known as late day trading is illegal and can be prosecuted under commodities fraud law.

Trading, even when done in ignorance (which is the way that over 90% of traders approach it) is still not sin. Trading is wrong only when the person doing it is behaving foolishly instead of wisely. Foolishness is not immorality, nor is it sin. You must look at trading for what it is — a business.