DIFFERENTIATING AN INVESTMENT FROM A BET
The line between trading and gambling may be blurry at times, as many investors incorporate staking their holdings on a contingency. However, in doing this, they are actually veering away from the success of markets, especially since they are unaware that the practice has already creeped its way into their decisions.
Oftentimes, individuals who are sure of not having any gambling tendencies do not tend to admit their actions have been influenced by the mere impulses, which gives rise to the betting act itself. Before delving further into the issue of whether you are investing or just wagering your money into something uncertain, it is crucial to note that gambling may take place even before you make your move in the market, and may drive the individual to develop a habit as they become regular participants in the field.
Among the early signs of falling into this trap is called social proofing, wherein the person gives in to the pressure of wanting to belong in his circle of peers who are constantly conversing about investment. The individual may feel compelled to conform to the 'trend,' which pushes them to enter the world of markets despite a lack of knowledge in the area. Although the act of trying to strengthen your social forces is not gambling itself, carrying out financial transactions without ample experience and grasp about it is considered as a bet. This is because resorting to this will leave you with less control over the profitability of your selections.
Trading for the thrill This is associated with feelings of satisfaction despite a losing trade, which is related to social validation. If everyone's money in a circle are being wasted due to a decline in markets, being in the same situation gives someone a sense of security since it gives them a reason to take part in a the group's conversation. A style like this is indeed a gamble, rather than a strategical way of negotiating. Since investing brings excitement as well since you get to join a network wherein there is a frequent exchange of ideas and beliefs. However, getting carried away by this emotion can be a distraction to acting in a methodical manner.
Prioritizing wins While it is an obvious fact that success is always the intended result of any transaction, there is a hidden flaw to this idea, as this shifts the focus away from making money. To give an example, this kind of mindset will likely lead to a scenario like this: A person bought stocks that seems oversold, which continues to decline overtime. Instead of realizing the outlook, he continues to hold on to the position in the hopes that the trend will reverse and enable him to have gains. This thinking has urged him to not to get out of uncertain positions, because doing so would mean admitting a failed exchange. Efficient traders should own up to their mistakes and keep the damage from ballooning since this is what helps them become profitable in the long run. Meanwhile, focusing on winning even after their original condition has remarkably changed is betting on something doubtful, and this practice is highly in contrast to how a sound trading should turn out.
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