Usually when we talk about the stock market people say “the stock market is pure luck, it’s like a casino, there’s no way to make money out there…”. I used to have difficulties explaining the differences I found between the stock market and casinos until I read “Come into my trading room” from Alexander Elder. The following is an excerpt from the book:

Most people gamble at some point in their lives. For most it provides entertainment, for some it becomes an addiction, while a few become pros and make a living at it. Gambling provides a living for a very small minority and entertainment for the masses, but a casual gambler reaching for a quick buck has the same chance of success as an ice cube on a hot stove.
Some card games, such as baccarat, are based on chance alone, whereas others such as blackjack, involve a degree of skill that attracts intelligent people. Professionals treat gambling as a job. They keep calculating odds and act only when mathematics point in their favor. Losers, on the other hand, itch for the action and enter one game after another, switching between half-baked systems.

Trading is the most exciting activity that a person can do with
their clothes on. Trouble is, you cannot feel excited and make money at the same time. Think of a casino, where amateurs celebrate over free drinks, while professional card-counters coldly play game after game, folding most of the time, and pressing their advantage when the card count gives them a slight edge over the house.

So the answer to the title is YES! The stock market is very much like a casino, because the vast majority of ignorant individuals get bust trying to make some easy money. “The house” (the major brokers, the “market makers”) eat them alive. Yes, it is very difficult to consistently beat the market as an individual trader, for instance take a look at the large investment institutions: they have a ton of analysts and traders who work every single day trying to find the best opportunities. And a lot of them fail too, so what’s left for us?!

Anyone can make money on a single trade or even several trades. Even in the casinos of Las Vegas you continuously hear the music of the jackpots. Coins pour from the slot machines, making a happy noise, but how many players go back to their rooms with more money than they came with? In the markets, almost anyone can make a goodtrade, but few can grow equity.

To be a successful trader, you have to develop iron discipline (Mind), acquire an edge over the markets (Method), and control risks in your trading account (Money).

The next posts on this subject will be about trading psychology, trading systems, and money management, which are the tools we need to master in order to be successful in trading.

But there’s a big difference between the stock market and a casino game. Casino games were made to make it almost impossible to beat the house, anyway there are a few systems for getting an edge on some of those games like the roulette and blackjack. Some skilled people happened to master those complicated systems, they broke the bank in casinos all over the world until they weren’t allowed to enter one any more, no more casinos let them play.

One of my favorite clients is a professional trader in London who
sometimes, for entertainment, goes to a casino at night. He plays
blackjack for a minimum stake of £5 and quits when he is either £200
ahead or £400 behind. He has worked out a card-counting method
and a money management system that have him going home with £200
13 times out of 14. He has proven to himself that he can steadily win
at the casino, and now he rarely goes there because he must spend
6 or 7 hours counting and betting before reaching his winning or losing
limit. It is hard work, counting all the time. The crowd of amateurs
around him is having a lot of fun losing. My client prefers to stay home
and trade stocks where the odds are much more to his liking.

The stock market is a very complex environment with countless variables, but at the same time there are a lot of systems, usually easier to follow, and the probabilities of success are way beyond those of the casino games systems.

Stock trading is not for everybody, it is a complex profession and it has nothing to do with gambling. It takes years of study, preparation and practice. The good news is Internet has made it possible for people like you and me to start with little money, open an account in a discount web broker, get all the relevant information for free most of the time. So the only thing you need at the beginning is time to learn, and to practice “paper trading” (trading in simulation platforms).

Are you ready?