Taking a Gamble When Trading

                Taking a gamble when trading is always fun, it satisfies your urges to strike it rich with one trade.  Just remember to not over gamble.  Keeping your gambling managed is something everyone needs to do.

                So what do I mean by gambling?  Well you know those times when a stock has gone from $50 to $.20 and you think they will recover.  You remember when you found a strong stock that you believe will shoot up far when its earnings are announced and that far out of the money call is only $.15.

                That is gambling.  It is when you are throwing your money away in search of huge unspeakable gains.  Now there is nothing wrong with gambling in the stock market as long as it doesn’t become a habit, and you manage your risk.

                Let us take the managing your risk issue first.  When you trade you should already be using proper risk management.  By that I mean you should never be risking any more then 2-5% of your account on any one trade.

                If you are going for the gamble you probably want to cut that level down even lower.  For instance if you normally risk 2% of your account on one trade you might not want to risk any more than .5% of your account for a gamble.  Remember you assume you will lose all money you gamble with.

                Another way you can determine how much you should gamble with is by simply asking yourself, how much am I comfortable throwing away.  If .5% of your account is $300 but you are only willing to lose $100 on a gamble, do not trade more than $100.  Toss the $100 away, assume it is gone but hope it comes back to you as $10,000.

                Also you should never get carried away with gambling in trading.  That is not a good trading strategy.   You should only take a big risk once or twice a year, or whenever you find those big rewards that are too hard to throw away.  But any gambling you make as a trader should be small and far apart. 

                If you are gambling every other trade or even one out of ten trades you are gambling too much.  I’ll say it again gambling is not a good trading strategy, but it can be fun every now and then.