The investor's angle: buy and hold?

Imagine an investor eyeing Apple stock for the long haul. Holding onto the stock as-is means facing a 100% downside risk. But, if they sell a call option, that risk can be trimmed. This showcases a fundamental distinction from gambling: the ability to manage and mitigate risk in trading.

Gamblers often place bets, hoping to strike it rich, even when the odds are stacked against them. Their strategy hinges on luck rather than a solid plan. Gamblers tend to lack an entry and exit plan, ignoring crucial factors like strategic edge, position sizing and risk management.

Options trading offers the most comprehensive playbook for managing risk and boosting portfolio performance. Options can help traders enter positions at better prices, generate income in stagnant markets, and shield against downside risks during market downturns. However, using options incorrectly can lead to outcomes resembling gambling.

One of the primary distinctions between trading and gambling lies in the presence of a strategy with an edge. Professional traders and investors meticulously analyse market trends, fundamental data, and technical indicators to create setups with an edge.

Trade management: navigating the unexpected

One of the most crucial characteristics of a professional options trader is their understanding of how to correctly manage their positions. Sometimes trades don't go as expected. While a gambler resorts to wishful thinking, a professional trader will defend his position based on logic and probabilities.

Discipline: a systematic approach
Unlike gamblers who chase their next dopamine hit, traders rely on their disciplined approach to navigate the markets effectively. Discipline allows traders to stick to their strategies, cut losses early, and let winners run, ultimately increasing their chances of long-term success.

Inspirational examples
Let's highlight the achievements of some successful traders who have proven that trading is far from a game of chance.

• The Macro Maestro
  Paul Tudor Jones is a legendary figure in the trading world, renowned for his 200-day moving average rule. Starting with modest means, Jones grew his net worth to an impressive $7.5 billion by April 2022. His focus on macroeconomic factors and market psychology has been key to his success. Jones is famous for his discipline in cutting losses early and letting winners run. His 1987 Black Monday Bet marked the beginning of his reputation as a trading legend. He ended the year with a 125.9% return, earning an estimated $100 million.

• The Swedish swing trader
  Kristjan Qullamaggie is another shining example of legit trading success. After blowing his account multiple times in his first two years of trading, he turned a mere $9,000 into over $100,000,000 in 2024. Qullamaggie's CAGR from 2013 until 2019 is 268%.

• The Trend Following Trailblazer
  Richard Dennis is famous for his Turtle Trading experiment, where he turned less than $5,000 into more than $100 million. His systematic trend-following strategy, which he taught to a group of novices, resulted in impressive returns averaging over 100% per year. Dennis' success highlights the potential for substantial gains with the right strategy and discipline, proving that trading is a skill that can be learned rather than an innate talent.

• The Stock Market Wizard
  Mark Minervini dropped out of school in eighth grade. It took him 6 years to become profitable, but he was able to grow $20,000 to over $30 million in trading profits. He achieved a 155% first-place finish in the 1997 U.S. Investing Championship. Recently in 2021 he won the $1,000,000+ stock division with a +334.8% annual return.

In conclusion
While trading and gambling share some similarities, successful traders like Paul Tudor Jones, Kristjan Qullamaggie, Richard Dennis, and Mark Minervini demonstrate that trading is far from a game of chance. These traders emphasise the importance of strategy with edge, risk management and discipline, which are key characteristics that differentiate them from gamblers.