Is share trading an art or science or gamble

Every trader has a unique approach to trading. There are two parts to this approach – the intention and the process.  

The intention of a trader draws the line between a gambler and a professional. Similar to a gambler, a trader who is emotionally attached to his shares and/or not thinking objectively is gambling. If the intention of a trader is to understand share market trading and make investments based on reasoning, then he is in the clear and is not gambling.

A person who researches the market to find the right share, weighs the pros and cons of every investment, strategizes exit and contingency plans, executes these plans impartially is trading professionally. On the other hand, a person who dabbles in the share market and bases their investments and exits absolutely on instincts, word-of-mouth, and without any substantial supporting data is gambling.

Next is the process followed by the trader – it varies based on individual style and investment firm policies. The majority of share market trading involves reasoning and analytical judgement while some instinctual decision making is also required.

The share market has numerous shares that are traded every day and traders often profit from the smallest fluctuations. The process of identifying a market domain with potential future growth is an art. A frequent shopper can identify a good quality clothing brand in a supermarket, a techie can sense the potential demand of an upcoming gadget in the market – the ability to spot an upcoming or growing product/domain is an art. Any regular individual can also spot these. For example, in the recent future when the pandemic struck, traders who foresaw the potential in the telecommunication or health sector before others profited substantially.

The art of share trading is selecting a domain or a product that is expected to have growth but without backing this art using science will translate into gambling. In order to convert an instinct about a share or sector into a sound and profitable trade one must crunch the numbers to ensure its sustainability and strength.

The science of share trading involves a comprehensive financial analysis of the company – understanding the financial health, perusing through historical financial reports, following the earnings and debt, etc. There are various pre-defined methods and principles available to perform these analyses. Sometimes these are also done using pre-built tools and software that saves the trader’s time and effort. The aim of doing this is to calculate the optimum price level for buying the shares, predict their future under different market conditions, benchmark expected returns, formulate contingency and exit plans, etc. In simple terms, the science of trading is to predict the future of a share and plan the investment using mathematical tools.

Share market trading is a high-risk business and there is no method or tool that can guarantee a profitable outcome. Though there are indicators that help in spotting growing shares and efficient planning enable in reducing losses. One should step into share market trading with long term goals as short term attempts can result in either big wins or quick losses.

Gambling, art, or science – this is a choice that a trader has to make. The individual personality and acumen of the trader will dictate their share market trading methods and in what proportion they chose the above options.