Ross Cameron Explains When Day-Trading Is Gambling
When is trading the markets a gamble and when is it a professional pursuit? Ross Cameron says sometimes it’s a fine line.
Legends abound of people making massive amounts of money as beginner traders in a single trade. Trading chatrooms are full of people bragging about how they had a hunch and took a chance that led to a sizable win. But professional traders need to be wary of such stories and concentrate on their craft, warns Warrior Trading founder Ross Cameron.
“A lot of people, unfortunately, treat trading very similar to playing the lottery,” said Ross Cameron. “They buy a ticket, they buy some stock, and they say, ‘Let’s just see what happens.’ And really to me that is not even day-trading. It’s gambling in the stock market.”
How People Talk About Trading Shows How They Think About It
“When I hear people call a trade ‘a play,’ that feels very akin to betting. And that, to me, just speaks to that mentality [of gambling],” said Ross Cameron. “But the fact is, I guess, enough people made money doing that during GameStop when stocks just kept going up, and [during] COVID, [that] some people thought they could just keep it up, and started upping the ante and taking bigger and bigger and bigger risks.”
But ultimately most of these “traders” didn’t keep their trading up, because at some point their luck ran out.
“The people that survived until now have only done so because they figured out a way to manage their risks,” said Ross Cameron. “They figured out a way to increase their probability.”
These traders are more like semiprofessional poker players, he said. Just like in poker, their trading “game” has reached a point where it’s no longer a gamble.
“It’s no longer betting if it’s no longer a game of chance because you have a strategy that has historical data,” Ross Cameron said.
Ross Cameron Sees Similarities Between Poker and Trading
Ross Cameron said he can see comparisons between poker and trading the markets. Participants in each can start as gamblers. But as they gain experience — and with a bit of luck on their side — they start to formulate strategies based on their understanding of the intrinsic nature of the game and other players at the table.
“They’re playing a game that produces consistency for them,” he said.
It wasn’t how he started trading. Ross Cameron always came to the job with analysis and strategy, treating his trades as anything but bets. But he can understand how others might have come to trading in such a way. The ones who stay, he says, do so because they change their mentality from gambler to professional.
Part of the transition comes from understanding the various success stories in the trading community and identifying which ones have the most teachable lessons. Stories of sudden success rarely do. Those of hard-earned gains over sustained periods of trading are the ones to take note of, he said.
It’s about the type of success story: effort and intelligence over luck.
Success Stories Can Be Inspiring — but Dangerous
“I’ve been trading for over a decade because of a lot of hard work and a lot of consistency and strategy, whereas the success of someone who made millions on GameStop with an out-of-the-money options contract was a gambler,” Ross Cameron said. “He bought a lottery ticket. There is nothing wrong with winning the lottery, but let’s call it for what it is.”
Following the strategy of a guy who bought a lottery ticket isn’t a strategy for a sustained career in trading, says Ross Cameron. For every one of those people, millions made nothing — and thousands who lost their shirts.
Ross Cameron says beginner traders need to take note and temper their expectations. Very few people win the lottery.
“The first thing that traders need to expel is the notion that they will find any sort of quick success because that is just not how it works,” stated Ross Cameron. “While there are certainly exceptions to that, the typical experience is that people come in, they go way too big too soon, they blow up their accounts, and then they’re gone. Knowing that most people do not find success, the first thing beginner traders may want to ask themselves is: What is it that most people are doing that’s causing them to lose?”
A lot of them are wrapped in the excitement of trying this new thing.
“They’re jumping in with real money right away and very quickly they get in over their head. Maybe they have a little beginner’s luck, which then follows by a period of overconfidence, which then creates a very quick and very real loss of capital,” explained Ross Cameron. “Then that feeling of sunken cost makes them think they’ve invested so much that they can’t walk away and must continue to try to recoup.”
And oftentimes these beginners never did any real training or had any real education, so they don’t know what they’re getting themselves into.
Those Who Don’t Know What They’re Doing Are Gambling
“You can’t just jump into trading with almost no experience, because you will almost certainly lose,” said Ross Cameron, who recommends that rather than looking at trading as a fun gamble in which you could make a quick million, look at it as an opportunity to learn about the financial markets.
“There’s no better way to learn about finance than throwing yourself right into the market by active trading, because you learn about the function of the market, and you learn how it works,” he said.
But that doesn’t mean throwing away thousands on your first trades without any experience. That’s still simply a gamble. Instead, Ross Cameron says beginner traders should take courses, read trading chatrooms, and trade first in a trading simulator where real money isn’t on the line but valuable experience can be earned.
Trading doesn’t have to be a gamble. And for the professionals, it isn’t.