How Is Trading Cryptocurrencies Different From Gambling? – When a market fluctuates more than 50% per year, it is easy to state that trading the market is merely gambling. That’s what has often been indicated about trading cryptocurrencies. Is that true? It can be if you are a gambler, and in that case, you can be gambling on anything: stocks, currencies, cryptocurrencies, horse races and your next president. However, if you have a trader’s mindset, you can trade any financial market, including cryptocurrencies. So, how is gambling on cryptocurrencies different from trading them?
How are trading and gambling different?
In gambling, most of the time (some card games such as blackjack or poker being an exception), the odds are stacked against the player. Each game has specific odds, and the odds favour the house (the casino). It makes most of the casino games ‘zero sum’ games. It means that the gambler will lose all of his money to the casino in the long run. Therefore, a casino does not have to worry about players having a series of lucky trades. Eventually, the results will even out and turn to favour the house. It is always like that because of a statistical formula that gives the house the advantage.
We know that in financial markets, most traders lose money. One might make the same conclusion that trading is gambling. But that is not true. We are not trading with the odds stacked against us. If you study the markets, you can trade in the direction of the trend, limit your risk, increase your profits per position, and wait for better opportunities; all of which help us stack odds in our favour. That is the difference between gambling and trading.
A fact to remember: Gamblers play with the odds stacked against them; traders trade with the odds in their favour.
How to turn odds into your favour and trade, not gamble?
If trading differs from gambling by simply shifting the odds of winning in your favour, the question is straightforward; how to do it?
Keep your emotions in check
“Pigs get fat; hogs get slaughtered”. Emotions such as fear and greed cause you to trade in unison with the herd, resulting in losses. It is a rush for a thrill that hooks gamblers and eventually makes them addicted to gambling. Those that simply follow their desire to make more money gambling end up losing it all as desire is a pure strategy, and the desire with odds stacked against you is a pathetic strategy.
Follow your trading strategy
You need a strategy that is time tested to become a winner in the markets. So, keeping your emotion in check and investing your time in developing and backtesting your strategy is a sure way from gambling to profitable trading as this approach is scientifically based. Spend time to find a trading system that fits your personality best, backtest it, practice on a demo account, and then bit by bit; you can implement it with real money.
Reduce the risk factor
“It’s not whether you’re right or wrong, but how much money you make when you’re right and how much you lose when you’re wrong” by George Soros.
Risk and investing are inseparable companions. You need to reduce the companion’s influence and give it as little space as possible. In other words, you need to reduce your risk while trading cryptocurrencies. There are a lot of ways to do that. One of the best ones is to improve the risk/reward ratio. Many losing traders quickly take their profits but allow their losses to run till they become unmanageable.
They have to reverse the process by cutting their losses quick and letting their profits run. It would translate into a risk/reward ratio of 1 to 2, at least, or better 1 to 3, and higher. It means that for every euro that you risk, you make 2 or 3 times more. You don’t want to risk your hard-earned money using a strategy with a risk-reward ratio less than 1:2, so adopt one that gives you at least 2 euros for every 1 euro that you risk.
Below is a visual expression of BTC/USDT that shows how the risk/reward may play out in the most recent bullish trend in bitcoin.
Source: https://www.tradingview.com/x/KJpSEkHv/Follow crypto whales
The crypto market (like any other financial market) is whales’ playground to a large extent. It is them who move billions of $, and those moves create significant changes in prices. Unlike other financial markets, where it is difficult to find reliable statistics about huge holders, on-chain data can give you a clear picture of what these mega holders are doing.
One of the blockchain features is transparency, and you can find out the change in volumes, addresses that transact in $ millions, etc., made by big market players. You can see whether they are accumulating or distributing. Thus, following them and trading in the same direction can put you on the knowledgeable side of the winners.
The most recent analysis from on-chain (glassnode.com) points out that to the fact that crypto whales have been accumulating a lot of bitcoin lately. Old coin holders and transactions higher than $ 1-10 million have increased sharply in the past weeks. It proves that the prominent market players have been accumulating lately, not liquidating their positions. It should be an excellent point to note as you keep moving forward in becoming a real trader and not a gambler.
Conclusions
Trading cryptocurrencies is not gambling if traders learn how to turn odds in their favour. Some of the best ways to do it are by keeping your emotions in check, following your trading plan/strategy, limiting risk/increasing profits, and finally following crypto whales’ activity and trading in unison with them. These adjustments to your trading will take you out of the crowd of gamblers and put you into the category of intelligent traders who make money consistently.
This post was last modified on March 21, 2022 7:33 AM