If you tell people that you trade for a living, many of them will liken you to a professional gambler. And while those who see the financial markets as a one big casino generally have no clue what they are talking about, the truth is that there are a number of similarities between the world of trading and that of sports betting.
In fact, these two fields have so much in common that there a number of lessons aspiring traders can take from professional sports gamblers to help them make better trades.
Here are five lessons you can take from the world of sports betting:
1. Focus on the things that really matter
When it comes to betting on sporting events, the pros know that the most important factor is which team has the better talent. Because, nine times out of ten, that’s the team that will win. Amateurs, on the other hand, get caught up in things like weather, matchups and injuries, factors that can easily cause you to make a bad bet and end up taking a loss.
The same applies to trading. When it comes to making a trade the most important things to pay attention to are your charts and your trading plan. If they aren’t giving you a clear trading signal then don’t open up a trade, and if they are then do.
Traders almost always get led astray when they allow themselves to get distracted by emotions and outside sources of information, and the best way to avoid this is to keep a laser-like focus on the fundamentals of trading.
2. Don’t pay attention to the media
This dovetails nicely with the previous point as professional sports bettors know that paying attention to the talking heads on sports television is a sucker’s bet that can lead to huge losses. These shows are filled with people speaking their opinions as if they are verifiable facts when in fact many of them have to clue what they are talking about, and the same can be said of the financial media.
This is why you should ignore what you hear unless there are facts that can back it up. Never base a trading decision solely on what someone else says. Instead, do your own research and make sure the trade fits within the parameters of your pre-established trading plan.
3. Always play the probabilities
Professional sports gamblers always make sure that the odds are on their side when they place a bet. Sure, the payout may be better if you bet on the underdog and they pull off an upset, but the chances of that are slim to none and the pros know that betting on them to do so is a surefire way to lose money.
The same goes for trading. Always look for high probability trades that are likely to be winners more often than not, because if you only take these type of trades and you follow a sound risk management plan, your likelihood of being profitable increases exponentially.
4. Be sure to always learn from your losses
Even the best sports gamblers take losses from time to time, but what separates the pros from the rest is that they always strive to learn from their losses — they never make the same mistake twice.
When you make a trade that doesn’t go your way, always be sure to try to figure out what went wrong. Now, sometimes you will see that you were unlucky and something happened that was outside of your control, and there’s not really anything you can learn from those situations. However, for those instances where you are to blame for the loss be sure to understand why so you can ensure you never do it again.
5. Remember that the point is to make money, not to prove how smart you are
When it comes to sports betting a lot of people like to make what’s known as “ego bets”. These are bets that carry a high amount of risk but, if they work out, can make the better look like a genius because they saw something that no one else did.
Needless to say, these bets almost never work out and instead of looking smart, these betters end up making the sportsbook owners richer.
When trading don’t try to look like a hotshot. I understand that one of the tenets of trading is to buy when no one else wants and to sell when everyone else is buying, but you should still do proper analysis and only make trades that have a high probability of success.
Remember, just because something is possible doesn’t mean it’s probable, and it would serve you well to know the difference.
Lamar Smith is a Forex trader turned writer who has spent the last 10 years writing articles designed to cut through the misinformation and help his fellow traders succeed.