The growing number of people who are claiming they lost money from using technical analysis is alarming. It even reached a point where some traders say that this strategy is no different than gambling because it’s all about probabilities and likelihood. But is it really true that technical analysis is just a fancy way of saying you are gambling with your trades?
Technical analysis is not gambling because it’s based on facts and figures, not on gut feel. There’s also a systematic approach to making your trades, and you don’t have to deal with the house edge. However, some traders who use technical analysis are also gambling without even knowing it.
This article will show you 6 solid reasons why technical analysis isn’t gambling. We’ll also share some tips on how you can avoid falling into the category of gambling traders. Stick around because this article might be what you need to change how you buy and sell positions and profit from them using technical analysis.
IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!
Table of Contents
6 Reasons Why Technical Analysis in Not Gambling
All Trades Are Based on Facts and Figures
Technical analysis always focuses on facts and figures related to an instrument. Traders study past performance data to provide them with a better grasp on the market. Then, they’re using the data to formulate profitable trades.
Although it’s not 100% accurate, and no trader will win 100% of his trades, TA still provides better information than making trades based on what the trader wants. Having a solid basis for all your actions is one of the biggest reasons why technical analysis isn’t gambling.
The decisions that traders make for their trades are based on facts and figures. It doesn’t care about the subjective fundamentals of an instrument or the rumors around it. If the numbers don’t make sense, traders know it and won’t buy or sell the position.
Technical Analysis Doesn’t Use “Gut Feel”
This reason is related to using facts and figures — when gambling, a gambler only makes his bet based on gut feel; whatever feels right is what he’ll bet on. Even “systematic gamblers” usually fall into the trap of making decisions based on what feels right.
In poker, for example, did you know that the biggest reason why many poker players lose most of their games is because of a term they call “tilt?” It’s a state of mind where the player starts to lose all logical and rational reasoning behind his bets, forcing him to make costly mistakes.
Experienced traders who use technical analysis aren’t emotional. They make decisions based on calculated-risk and actionable trades — they have a range on the profit they expect, but they also have a stop-loss in place to prevent further losses.
Gambling doesn’t have these things. A gambler only wants to win as much money as possible. And there are no safety nets in place to prevent further losses.
Remember, there’s no such thing as disciplined gamblers, only lucky ones. On the other hand, technical analysis requires the trader to be disciplined enough to enter positions with a high risk/reward ratio.
There Is No House Edge
House edge refers to how much the casino expects to make at any game in a prolonged period. It’s a mathematical advantage that casinos use to make money and ensure that they profit from every game.
Simply put, in a game with a 2% house edge, the casino expects to make $2 for every $100 bet from a player. Of course, this edge isn’t that obvious when you’re winning because it’s a statistical advantage that spans thousands of games. The house edge ensures that the casino will always win, and it’s also why people say it’s impossible to beat the house.
On the other hand, technical analysis — or trading in general — isn’t all about beating the house. There’s no house edge, and you’re not playing a zero-sum game. In fact, making money from trades you made using technical analysis doesn’t necessarily mean that someone lost money, which is the complete opposite of gambling.
Technical Analysis Requires Patience and Discipline
Patience and discipline is the most contrasting difference between using technical analysis for trading vs. gambling. If you want to take advantage of technical analysis, you must be patient and disciplined enough to make the trades where the numbers make sense and skip those that don’t.
Gamblers make their bets for the shot of dopamine, and they make their bets regardless of the situation. There’s no patience or discipline involved, and despite the different strategies that other “expert gamblers” teach, there’s no way around the emotions involved when gambling.
We’re not here to say that traders aren’t gamblers — some traders gamble without even knowing it. We’re saying that there is a clear separation between traders who get consistent profits from using technical analysis versus those who are using it to gamble.
Trading Isn’t All About Winning or Losing
When you’re gambling, and you win, someone else loses money — it’s an indisputable fact. The value of a slot machine, a card, or the roulette doesn’t change based on how the market moves. If you win a dollar, someone else loses exactly a dollar — sometimes even more because of the house edge.
On the other hand, using technical analysis for trading isn’t as simple as winning or losing money. In fact, you can make a lot of money from trading, and no one even loses their investment.
The reason is that technical analysis studies past performance data to predict the future price of an instrument. If you successfully formulate your trades, you can make money from another person buying the instrument you have at a higher price. However, this doesn’t mean that he loses money.
In fact, if he did all the analysis and determined that the price will continue to go up, he will also make money from the trade. That’s why, unlike gambling, using technical analysis for trading isn’t as simple as winning or losing — it’s about making the right calls to turn a profit or put safety nets in place to prevent massive losses.
Technical Analysis Is All About Risk Management
Now, this is the reason why many people think technical analysis is not different from gambling. Thousands of ads show people how easy it is to make money from trading using technical analysis. Although it’s possible, making money from technical analysis also requires experience, continuous learning, and a systematic approach to making trades.
Aside from this, many people think it’s an exact science that will show them the exact price to buy or sell an instrument. The truth is that you should only use technical analysis as a guide to managing your risks when holding a position.
Instead of a money-making tool, technical analysis is only a risk management tool. It doesn’t guarantee the profits that you’ll make, and it’s not 100% accurate. It can only increase the profits you make from your trades, but it will not instantly turn you into a “superstar trader” who can make millions from a single trade.
Author’s Recommendations: Top Trading and Investment Resources To Consider
Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.
- Roadmap to Becoming a Consistently Profitable Trader: I surveyed 5000+ traders (and interviewed 50+ profitable traders) to create the best possible step by step trading guide for you. Read my article: ‘7 Proven Steps To Profitable Trading’ to learn about my findings from surveying 5000+ traders, and to learn how these learnings can be leveraged to your advantage.
- Best Broker For Trading Success: I reviewed 15+ brokers and discussed my findings with 50+ consistently profitable traders. Post all that assessment, the best all round broker that our collective minds picked was M1 Finance. If you are looking to open a brokerage account, choose M1 Finance. You just cannot go wrong with it! Click Here To Sign Up for M1 Finance Today!
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Conclusion
People aren’t wrong to think that using technical analysis is no different than gambling. Some traders use this method incorrectly, and they lose a lot of money in the process. But there are even more reasons that prove technical analysis is a solid strategy that can help you be more profitable.
Although you need to consider many things to be successful with it, technical analysis can still help you get into better positions. Hundreds of individual traders found great success and are making millions solely from using technical analysis.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
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