In fact, average investors are far more likely to ‘gamble’ than traders are because they have no real parameters for their investment decisions. They simply buy, hold, and hope!
Professional traders do not buy, hold and hope. They have very specific and clear parameters for EVERY trade they take. A good trader will NEVER take a trade that doesn’t have a pre-determined ENTRY PRICE, PROTECTIVE STOP LOSS and TARGET. This means that the potential outcomes of the trade are already known BEFORE the trade is ever taken. How many investors genuinely know what their exit strategy is BEFORE they enter the investment? Virtually none. The reason this is such an issue is because they are basing their decisions purely on emotion. Sure, they might be using some form of fundamental analysisto decide if it’s a ‘good’ company; perhaps credit risk, company sales, P/E ratio, management team and overall growth, however, stocks do not always trade rationally. Where does this leave the fundamental, long term investor? They typically don’t know themselves!