In the most recent FOMC meeting, the Fed held rates unchanged, which was no surprise, and it meant that this liquidity-driven long-term bull market in stocks and crypto will continue running.
Stocks and crypto are actually pretty correlated, and the biggest danger to the uptrend is if yields start rising.
In this post, I’m going to do an overview of the stock and crypto market, as well as review some of our recent trades.
Covid updates
Before we go into the markets, let’s take a quick look at the Covid situation, with a focus on vaccination.
As you can see from this chart, vaccination rollout globally is progressing slowly, with less than 10% of the world population having at least one vaccine dose.
In addition, numerous variants have been detected globally, such as Britain’s B117 strain, Brazilian P1 variant, South Africa’s B1351 and India’s “double-mutant” variant called B1617.
This does not bode well, and we can see a large disparity between the richer and less affluent countries.
Nevertheless, the financial markets seem to disjointed from the real world, as asset prices continue to climb.
Earnings & Employment (NFP)
If we look at the daily trends, the crypto market, stock market, and even the oil market are all in a strong bull trend.
And with the recent earnings season, a record 87% of S&P 500 companies have beat earnings estimates, and earnings look to be growing by more than 46%, according to Refinitiv.
Credit Suisse’s chief U.S. equity strategist, Jonathan Golub, has raised his forecast for the S&P 500 based on strong earnings.
He wrote, “we are raising our 2021 S&P 500 price target to 4600 from 4300, representing 9.2% upside from current levels, and 22.5% for the year.”
This coming week, we will also see the data from the NFP (non-farm payrolls), which will tell us how good the job market is amidst the US recovery from Covid.
Stock Market Targets Hit
In my previous market analysis posts, I predicted the breakout of the S&P 500 with the first target of around 4120 and the second target of 4215.
On 13 April 2021, it hit the first target of 4120, and in the Telegram screenshot above, I said that it would continue to the next price target of 4215.
Just a few days ago, we saw that exact target being hit. Congrats! ???
Bitcoin: 24% profit in 7 days!
Bitcoin was very exciting because we traded it downwards, and then upwards, and both trades were very proftable!
We spotted this rising wedge in Bitcoin, which was bearish, so we took a short position, and from here we saw a 25% correction from its all-time highs.
Following that, I pinpointed a rebound for Bitcoin, with uncanny precision.
Within just 2 days, we saw a sharp rebound of 17% from the lows, but we were still not done.
Finally, after 7 days, we took profit at the resistance level, netting a 24% profit in 7 days. Ka-ching! ???
Dogecoin: 38% profit in 5 days!
Dogecoin admittedly was a more volatile creature, so we had to be more careful in finding trading opportunities for this.
Finally, we spotted a huge pin bar (bullish hammer candle), and this was the perfect opportunity for a long trade.
From there, it went up 38% in the next 5 days, and it still looks like it can continue going up, so we are still holding on to this. ??
Ethereum: 50% Profit in 13 days!
I mentioned in my previous market analysis post that Ethereum is even more bullish than Bitcoin based on the chart, and now you can see why.
In just 13 days after hitting the support level (great place to buy), we netted a profit of 50%, and the price still looks to be heading higher.
At this point, I won’t be too greedy and will take most profits and wait for the next pullback to enter again.
Here’s some feedback from one of my new students, and I’m glad to see they are profiting from the Crypto bull run as well.
I have come to the end of this market analysis.
Now that I have shared my views on the various markets, do you think the markets will continue going up, or will it be a case of “sell in May and go away”?
Overconfidence Bias in Trading: What It Is and How to Fix It
Last updated: 3 July 2026 · By Spencer Li, CFTe
Overconfidence bias in trading is the unwarranted faith in your own judgment, predictions, and abilities, the gap between how good you think your decisions are and how good they actually are. It shows up in two forms: prediction overconfidence (your forecasts are too precise, your confidence intervals too narrow) and certainty overconfidence (you are too sure you are right). It hurts your trading in concrete ways: you take positions too large, skip the stoploss, hold losers too long, and trade too often. The fix is one disciplined habit. No matter how good your analysis is, assume your edge is at most 60-70%, which means there is always a 30-40% chance you are wrong. Trade from that number and you keep your risk management, your contingency plan, and your stoploss in place. Trading is a game of probabilities, and nothing is 100%.
Here is what the bias is, the two types, how each one damages your account, and how to keep it in check.
What is overconfidence bias?
Consider this: “Despite the fact that more than 90% of car accidents involve human error, three-quarters (73 percent) of drivers consider themselves better-than-average drivers.”
That sounds delusional. The same thing happens in trading. Most people think they can beat the markets. But is that true?
First, what is confidence? According to Wikipedia, confidence is “a state of being clear-headed either that a hypothesis or prediction is correct or that a chosen course of action is the best or most effective.” The word comes from the Latin fidere, “to trust.” So self-confidence is trust in yourself, and that is a good thing to have.
But too much of a good thing turns bad. Overconfidence bias (the unwarranted faith in one’s intuitive reasoning, judgments, and cognitive abilities) is what you get when there is too much of it. In plain terms, people think they are smarter and make better decisions than they actually do.
“Too many people overvalue what they are not and undervalue what they are.” – Malcolm S. Forbes
Why does overconfidence bias happen?
Studies have shown that people overestimate two separate things:
Their own predictive abilities, and
The precision of the information they have been given.
In the first case, people think they are smarter than they are. In the second, they think their information is better than it is.
Here is the everyday version. Someone gets a tip from a broker, or reads something off the internet, and they are ready to place a trade right away on the strength of that perceived knowledge advantage. But if there is no logical basis for the advantage, the edge does not exist at all, no matter what the trader thinks he knows. They are too confident the information is accurate without doing the work to verify it before acting.
There is one more layer. People are poorly calibrated at estimating probabilities. Events they think are certain to happen are often less than 100% certain to happen.
What are the two types of overconfidence bias?
There are two kinds, and they fail in different ways. Prediction overconfidence is about how accurately right you think you are. Certainty overconfidence is about how likely you think you are to be right.
What it is
How it sounds
How it shows up in trading
Prediction overconfidence
Your confidence intervals are too narrow, your forecasts too precise
“It will hit exactly $182.50 in 11 days”
Chasing precise price targets, trusting “expert” forecasts, betting on a pinpoint that no one can actually call
Certainty overconfidence
You are too sure your judgment is correct
“This is a sure-win”
Oversized positions, higher risk, no stoploss, no contingency, blind to the chance of a loss
Prediction overconfidence bias
Here the confidence intervals traders assign to their predictions are too narrow. The classic example is “experts” forecasting precise price targets. You see it in the news all the time, a celebrity or an analyst or a bank putting out some ridiculous price projection.
It is simply not possible to forecast with that kind of accuracy. Even professional traders only get an idea of direction and some idea of magnitude. No one is going to pinpoint the exact price a stock reaches on an exact day. That is prediction overconfidence, or most of the time, just fabricating numbers for attention.
Certainty overconfidence bias
Here traders are too certain of their judgments. At the professional level, even when you find a good trade, you are at most 60-70% certain, and that is good enough to be profitable over the long run.
But when an amateur sees that same trade, they get 90-100% certain it is a winner. So they treat every trade as a “sure-win,” go blind to the prospect of a loss, and then feel surprised and disappointed when it performs poorly.
That same overconfidence pushes them into larger positions, higher risk, and no contingency plan or stoploss. After all, why would you need a stoploss if your trade is a “sure-win”?
How does overconfidence bias affect your trading?
The dangers are numerous, and they stack:
You go blind to warning signs. If you overestimate your ability to pick a winner, you stop seeing the information that says your decision was wrong. That gets you into bad trades and keeps you in losing ones.
You overtrade. If you believe you have special knowledge, you trade more often than your real edge justifies.
You underestimate downside. In the worst cases this means trading with no stoploss at all, which is how small mistakes become account-ending ones.
How do you prevent overconfidence bias?
There is a fine line between confidence and overconfidence. You need enough confidence to trust your analysis and not get swayed by the crowd, yet not so much that you think your analysis is 100% correct.
The rule that holds the line is a single number. No matter how good your analysis and research is, assume the edge you have is at most 60-70%, which means there is still a 30-40% chance you are wrong.
Enter every trade with that mentality and the rest follows naturally. You do your proper risk and money management. You keep a contingency plan. You place your stoploss to cap the downside. That is the whole defence, and it works because it is built into your process rather than relying on you to feel humble in the moment.
Always keep in mind: trading is a game of probabilities, and nothing is 100%.
Where the human edge comes in
A backtest can hand you a strategy with a positive expectancy. A screener can rank a hundred setups in a second. What no tool will do is hold your size down when a setup feels like a sure thing, or make you place the stoploss you do not think you need. Overconfidence is not a data problem, it is a judgment problem, and judgment is the first of the Five Edges a machine cannot trade for you. The 60-70% rule is how you install that judgment as a habit instead of a feeling.
FAQ
What is overconfidence bias in trading?
Overconfidence bias is the unwarranted faith in your own judgment, predictions, and abilities, the gap between how good you think your trading decisions are and how good they actually are. It leads to oversized positions, skipped stoplosses, and overtrading.
What are the two types of overconfidence bias?
Prediction overconfidence (your forecasts are too precise and your confidence intervals too narrow) and certainty overconfidence (you are too sure you are right). The first makes you chase exact price targets, the second makes you treat trades as “sure-wins.”
How does overconfidence affect trading decisions?
It makes you take larger positions, skip the stoploss, hold losers too long because you ignore warning signs, and trade too often because you believe you have special knowledge. All of it underestimates downside risk.
How do you overcome overconfidence bias in trading?
Assume your edge on any trade is at most 60-70%, never higher. That built-in 30-40% chance of being wrong keeps your risk management, contingency plan, and stoploss in place on every trade.
Is confidence bad for trading?
No. Confidence is necessary, you need it to trust your analysis and not get swayed by the crowd. The problem is overconfidence, when you think your analysis is 100% correct. Trading is a game of probabilities, and nothing is 100%.
Now that you know the two types of overconfidence and the 60-70% rule that defends against them, how do you think the bias has affected your own trading decisions? Let me know in the comments.
Want a system that takes the ego out of it? Grab the free 15-Minute Swing Trading Starter Kit. It’s the exact routine I use to scan once a day and trade any market in 15 minutes, with the risk rules built in so a “sure-win” feeling can’t blow up your account.
About the author. Spencer Li is the founder of Synapse Trading and a Certified Financial Technician (CFTe) with 15 years of trading across stocks, forex, crypto, commodities, and bonds. His trade log is public, 404 trades, losses left in. He teaches low-risk swing trading in 15 minutes a day, one system for any market.
Education, not financial advice. Synapse Trading is not licensed by MAS to advise on investment products. Trading carries risk of loss; past performance is not indicative of future results.
https://synapsetrading.com/wp-content/uploads/2010/12/Overconfidence-Bias-in-Trading.jpg7201280Spencer Lihttps://synapsetrading.com/wp-content/uploads/2019/10/logo.jpgSpencer Li2021-04-29 16:00:062026-07-06 02:47:50Overconfidence Bias in Trading – How Can I Ever Be Wrong?
As countries around the world roll out their vaccine plans, we can see different industries and different countries recovering at different rates.
However, only a small percentage (about 5%) of the global population is vaccinated, so it might take a while before we start to see the results of the vaccines kick in to reduce new Covid cases.
If you look at the graph of new cases, it is still on the rise.
Given such a scenario, how does this affect the financial markets, and what are some of the investment opportunities we can look at?
Stock Market Surge
On 31 March 2021, I shared this important snippet in the public Telegram channel, because I felt that S&P 500 was going to have a breakout.
“Following up on the S&P 500, it is still within the range, but now the odds are much higher that it will continue going higher.
If I had to guess, I would estimate 70% bullish and 30% bearish.
This means it’s a good low-risk opportunity to add long positions, with a SL just below the recent swing low (around 3840).
Shared this with my students a few days ago, will tonight be the night the S&P 500 makes a new high?”
That very night, stocks broke to a new high, and has been steadily heading up for the past 1-2 weeks.
“Following up on our last post, the market is surging up as predicted. Congrats to those who followed! ???“
As of Friday last night (9 April 2021), the S&P 500 has hit our first price target of 4125, giving us close to 4% gain so far.
We have taken half profits, and there might be small pullback where we can add positions before gunning for the next price target.
Not Much Upside for Oil Markets
On 27 March 2021, I shared a chart on the long-term outlook of the Crude Oil market, and I felt that that most of the post-Covid recovery has been priced into oil, and since it won’t be going up much, I suggested taking a long-term short position on it.
“Looking at the long-term chart of Crude Oil, we saw it bottom around April last year, before recovering all the way to previous highs in a 2-legged move.
Something interesting to note is that the 2 legs of the 2-legged move are exactly the same length.
Now that it has reached the pre-Covid highs, I do not see much more upside for Crude Oil.”
“Following up on Crude Oil, it has started turning down as predicted. Possible short entry for the next leg down.”
Since then, prices have started to turn down a little, and I will continue to hold my short positions for another possible leg of price movement downwards.
Will USD Become Bullish?
On 27 March 2021, I noticed that the USD was picking up strength, which was surprising, considering how much money the US has been printing.
My guess is that currently, the US is recovering faster from Covid as compared to many of the less developed countries.
“Looking at the US Dollar Index (DXY), it seems like after a multi-year downtrend, the USD is picking up strength.
It has broke the long-term bearish trendline, formed a small double bottom, and is now challenging the 200-EMA.”
Looking at the larger chart of the US Dollar Index (DXY), you can see that price has formed a double bottom, however the size of this pattern is not that convincing since it is comparatively small.
Price is now fighting in the middle of the EMAs, and we will need to see if it can emerge victorious and stay above all the EMAs.
Relative Strength of Forex Pairs
Let’s take a look at the other currencies and their relative strength.
This shows the current ranking of different currencies, from strongest to weakest.
“Stocks continue to surge as predicted, and because the JPY is weakening, all pairs of /JPY are very bullish too.”
This shows the trends of the different currency pairs, stocks indices, commodities and bonds.
From these 2 tables, we can see that JPY & GPY are bearish, while USD & CHF are bullish.
Crypto: Bitcoin & Ethereum
Cryptocurrencies are really heating up right now, and I’ll be focusing on the 2 major ones – Bitcoin (BTC/USD) and Ethereum (ETH/USD).
Looking at the chart of Bitcoin (BTC/USD), it is still staying nicely within the uptrend channel, with a nice ascending triangle building up for more bullish pressure.
It is very likely that it will break new highs this weekend.
Looking at the chart of Ethereum (ETH/USD), it is possibly even more bullish than Bitcoin, after a breakout of a ascending triangle, a pullback to test the breakout, which also formed a bull flag.
That is already a confluence of 3 bullish factors.
Needless to say, I will be holding on to this as well.
Market Summary
In this post, I have covered many markets, and the key things to note are:
Bullishness of the stock market
Long-term bearishness of Crude Oil
Potential bullish reversal of the USD
Bearishness of JPY & GPY
Bullishness of USD & CHF
Bullishness of cryptocurrencies
Now that I have shared my views on the various markets, what do you think is the best investment at this point of time?
https://synapsetrading.com/wp-content/uploads/2021/04/draft-2-market-analysis-what-to-buy-now-e1618222224862.jpg6081080Spencer Lihttps://synapsetrading.com/wp-content/uploads/2019/10/logo.jpgSpencer Li2021-04-10 18:51:112022-03-08 11:56:07Stock Market Surges As Predicted – What to Buy Now?
Would you pay millions of dollars for digital artwork?
Welcome to the world of NFTs, or non-fungible tokens.
Just this year so far, about $1.3 billion of NFTs have traded through Ethereum network, dwarfing the activity last year.
The biggest transaction was an NFT purchased for $69.3m dollars.
At this point, you might be wondering, what is a NFT, and whether it’s even a real thing.
Sounds unbelievable? Let’s find out more about this hottest new asset class.
What is a NFT? (Non-Fungible Token)
So, what exactly is a NFT, or non-fungible token?
Firstly, to understand what fungible means, let’s look at the concept of normal fiat currency.
If you have a $10 bill, that bill is fungible, because it is completely interchangeable with any other $10 bill. Every bill has the same value, and there is nothing unique about it.
Similarly, cryptocurrencies like Bitcoin are also fungible, meaning 1 Bitcoin (BTC) is interchangeable for any other Bitcoin and has exactly the same value.
On the other hand, NFTs, which rely on special token standards like ERC-721 (using blockchain technology) to ensure uniqueness, are non-interchangeable and each token is unique.
In this way, NFTs are like digital artwork or collectibles because they are one-of-a-kind, and ownership is locked to one particular person (the owner/buyer), making every piece a unique and limited-edition piece of work.
“Think of it like a digital passport that comes with an asset,” said Nadya Ivanova, chief operating officer of BNP Paribas-affiliated research firm L’Atelier. “They allow for this trust and authenticity to be established in a way that we haven’t been able to do before, whether it’s with physical assets or digital assets.”
Now that we have some understanding of “what is a NFT?”, let’s go more in-depth to see how they work.
How do NFTs Work?
What is a NFT token?
Non-fungible tokens are actually cryptographic tokens with unique identification codes and metadata that make them unique.
Created on a smart contract platform such as Ethereum, these tokens are unique and cannot be replicated.
This means that when you buy an NFT, you are essentially buying lines of code on a blockchain.
But these lines of code do have value.
They represent proof of ownership and authenticity of these digital artworks and assets, that this asset you own is uniquely and authentically yours.
This blockchain, which is a type of decentralized record-keeping on a public ledger of blocks, means that the whole world knows who officially owns the NFT.
And because it is decentralized, multiple records are stored all over the place, so it is impossible to hack the network to “steal” ownership of the NFT.
Since an NFT’s uniqueness and ownership can be easily verified, and they ensure strong property rights which cannot be stolen, they can be efficiently traded on the secondary market.
As a result, this new asset class can empower creators, such as artists, developers, in a variety of new ways that weren’t possible before, allowing them to monetise their creations more directly.
The Different Types of NFTs
What are NFT applications?
Back in 2017, we saw the first NFTs in projects such as CryptoPunks and CryptoKitties, where blockchain technology was used to sell online collectibles.
Since then, the industry has bloomed into a wide variety of new use cases and industries, with a market exceeding $1b dollars.
Non-fungible tokens can be used to tokenize just about anything, and so far some of the most popular NFT use cases have been:
Here are some recent samples of NFT artworks and related products that have been sold, proving that this is a potential multi-billion dollar or trillion-dollar market.
NBA’s Top Shot NFT-based trading card system – $230m in sales
“Everydays: The First 5,000 Days” by Beeple – $69.3m
CryptoPunks #7804 and #3100 – $7.6m each
CROSSROAD by Beeple – $6.66m
Collection of 10 digital artworks by Grimes – $6m
First Tweet by Jack Dorsey – $2.5m
Exclusive NFT version of their latest album by Kings of Leon – $2m
CryptoPunk #6965 – $1.54m
Auction Winner Picks Name by SSX3LAU – $1.33m
Not Forgotten, But Gone by WhIsBe – $1m
Hairy by Steve Aoki – $888,888.88
THE COMPLETE MF COLLECTION by Beeple – $777,777.77
Nyan Cat by Chris – $590k
The founder of Twitter, Jack Dorsey, recently auctioned his first tweet ever on the Twitter platform to raise money for charity.
The tweet, which said “just setting up my twttr,” was first published on March 21, 2006 and was sold for $2.9m.
What is a NFT Artwork? Is it a Scam?
So, what is a NFT artwork and how it is different from normal artwork?
When you buy a non-fungible token, what you are getting is a unique cryptocurrency token on the blockchain.
Some NFTs have only one version, so it is like owning the authentic version of a famous artwork such as the Mona Lisa.
However, things can get a little confusing here.
Because there are also NFTs which are digital versions of the reprints, kind of what you see in Pokemon cards where each card is printed multiple times.
But for each NFT, there is still a unique “watermark”, which is the code, so if yours is the original or limited edition, then the property rights or IP of the digital asset belongs to you.
For example, the “Nyan Cat” meme is freely available to anyone who wants to download a copy of it, but none of these downloads are the ‘real’ Nyan Cat NFT worth 300 ETH.
In the jargon of the art world, the difference is like owning an original versus owning a replica.
In the art world, one of the biggest problems is fake artworks.
However, because of blockchain technology, it is impossible to sell “fakes” of NFTs, because anyone can easily check the online public ledger to see who owns the real original NFT.
So in a sense, it is actually safer than physical artworks.
How Much is an NFT Worth? What Are the Risks?
How much should you pay for an NFT, or how much should you sell one for?
Just like dealing in valuable art pieces or collectibles, this answer is tricky because the value is totally dependent on supply and demand.
An art piece or collectible is only worth as much as what the next person is willing to buy it for.
So using that as a benchmark, you want to look out for things like artist reputation, scarcity, and provenance, including the origin and past transactions.
You can try to benchmark it against other similar pieces by the same artist, or other products in the same genre, but at the end of the day, the worth is determined by the market.
Hence, you want to make sure there is still interest and other buyers for your NFT, should and when you decide to sell it in the future.
The biggest risk is that should the NFT craze turn out to be a bubble, kind of like a game of “pass the bomb”, then you don’t want to be the fool left a bunch of worthless NFTs which you paid a lot for.
Since this is still the early phase, the risk of this is less, but the risk of a potential bubble increases if prices for popular NFTs keep increasing exponentially, akin to the Tulip Mania.
Another risk is that because NFTs are transacted in cryptocurrencies (ETH), the prices of NFT are very likely tied to the price fluctuations of cryptocurrencies.
So if you have noticed, there are sort of 2 different segments of NFTs. One is the super expensive NFTs of rare digital artworks or collectibles, while the other is the more “down-to-Earth” retail market for common folks to sell or access useful products and services.
For the former, just like the market for valuable artworks and collectibles, I feel that it is somewhat of a playground for rich investors to speculate, and not really meant for the typical retail investor.
How to Create & Mint NFTs
However, even though you don’t have millions of dollars to speculate on non-fungible tokens, you can still take advantage of this trend by creating and selling your own NFTs.
If you have already tried uploading photos or videos on social media platforms like Facebook, Instagram, or Tik Tok, then you already know how to create “digital artwork”.
The difference is that after creating your artwork, there is one extra step called “minting” to turn your creation into an official NFT.
To do that, you can use one of the many NFT minting platforms around the Ethereum ecosystem. Each has its own pros and cons, and different fees.
DIY (do-it-yourself) minting platforms like OpenSea, Rarible, InfiNFT, Mintbase, and Cargo let creators easily and permissionlessly mint their own NFTs.
On the higher end, there are some exclusive membership-only NFT minting platforms to which creators have to apply and be accepted before they can mint through these platforms, such as SuperRare and Async Art.
Once you have decided on your platform, you will need to upload your artwork, fill in a description, and decide whether you want to create a standalone or edition-based piece, your asset’s royalty percentage, unlockable content, etc.
Finally, you will need to make payment via ETH (Ethereum) for the approval and minting process to commence.
How to Buy and Sell Non-Fungible Tokens (NFTs)
Now that you have created your own non-fungible token, the next step is to find a marketplace to sell it.
You might be wondering, what is a NFT marketplace?
Thankfully, there is already such ecosystem set up, with open marketplace platforms like OpenSea, Nifty Gateway (art), Decentralland, Enjin (games), Yellowheart (concert tickets), NBA Top Shot (NBA collectibles), SuperRare (art) and Rarible where you can list your NFTs for sale easily, depending on which category your NFT falls under.
Payments are done via Ethereum (ETH) as well, so you will need to connect your wallet to the platform, in order to buy or sell any NFTs.
Criticism of NFTs
What are some of the current drawbacks of this non-fungible tokens system?
High Transaction Fees (Ethereum Gas Price)
If you recall in the previous segments when we talked about minting, buying and selling NFTs, there were transaction fees involved.
One problem is that these transactions fees can be quite high.
As most NFTs are on the Ethereum blockchain platform, each transaction requires the payment of Gas: the fee charged for processing a transaction or contract on the Ethereum blockchain network.
This fee is denominated in gwei: a small fraction of ETH.
Hopefully, as the market matures, and more competition comes in, the fees for these transaction costs will fall as well.
Environmental Impact
Currently, Ethereum still operates on the “Proof of Work” architecture that requires mining, which consumes a large amount of electricity and leaves a large carbon footprint.
To put this into context, the amount of electricity that the Ethereum network consumes rivals that of countries like Ecuador with a population of about 17.4 million.
Since almost all NFT transactions involve ETH, this will undoubtedly contribute to the usage of the network and electrical consumption.
Hopefully, Ethereum will be transitioning to a more eco-friendly “Proof of Stake architecture” soon, although progress has been slow since this idea was first put forth years ago.
Concluding Thoughts on NFTs
Currently, the NFT transactions attracting all the hype are the super expensive transactions similar to valuable artworks or rare collectibles.
While these garner the headlines, the more relevant applications NFTs could lie in empowering independent creators such as artists and developers to directly monetise their creations.
The huge potential also lies in the myriad of products and services which businesses (both small and large) can create or tie-in with their existing offerings in the offline world.
This means that in a couple of years, many of these products and services could become commonplace in our lives, unlocking a trillion-dollar market opportunity.
Now that I have shared all you need to know about NFTs, what do you think of this new asset class? Is it a bubble or is it here to stay? And if someone asks you “what is a NFT?”, will you be able to explain it to them?
https://synapsetrading.com/wp-content/uploads/2021/04/Why-are-NFTs-non-fungible-tokens-worth-millions.jpg7201280Spencer Lihttps://synapsetrading.com/wp-content/uploads/2019/10/logo.jpgSpencer Li2021-04-08 20:22:302022-12-21 02:58:58What is a NFT (Non-Fungible Token) and Why are They Worth Millions?
Is trading gambling? No, not if you have an edge. The single difference between the two is the mathematical edge, which is whether probability is on your side over many repetitions. A casino has the edge over its players, so it wins in the long run. A professional trader builds the opposite: a strategy with a positive expected outcome, so the trader wins in the long run. They can look identical from the outside (both involve luck, skill, probability, and the chance to win or lose big quickly) but the math points in opposite directions. Personally, I would estimate trading is roughly 80% skill and 20% luck, and gambling is the reverse, 20% skill and 80% luck. The catch is that an edge on paper is not enough. You also have to spread your money over many trades and actually follow your plan, because emotions like greed and hope quietly erode the edge you worked to build.
Here is how the edge works, how to measure it, and why the real risk is the player, not the activity.
What is the difference between trading and gambling?
At first glance, trading looks a lot like gambling. That is why most people lump them together and assume both are intrinsically risky with a high chance of a huge loss. The similarities are real:
Both involve a mix of luck and skill.
Both run on probabilities and uncertainty.
Both can make or lose large amounts of money in a short time, depending on your skill level.
But there is one big difference, and it changes everything: the mathematical edge.
Simply put, the edge refers to whether probability is on your side. If you are a professional trader or a professional gambler and you have the edge, you will likely be profitable in the long run. If you have no idea what you are doing, you do not have the edge, and you will most likely lose in the long run.
In a casino, most people have no idea what they are doing, and most are there to have fun. So the casino has the edge, and hence it wins most of the time. To beat the casino, or to beat other players in the financial markets, you need an edge of your own. Your trading plan and your trading journal are how you build it.
Trading (with an edge)
Gambling in a casino
Skill vs luck (my estimate)
~80% skill, 20% luck
~20% skill, 80% luck
Who has the edge
You, if you have a tested method
The house, almost always
Expected outcome E(X)
Positive, if your method is sound
Negative for the player by design
Right way to bet
Many small trades (law of large numbers works for you)
A handful of large bets, then quit while up
Long-run result
Profitable, if you follow the plan
The house wins
Notice the bottom two rows. The correct strategy for trading and the correct strategy for gambling are exact opposites. More on that below.
What is expected outcome in trading?
Before going further, let me explain what this edge actually is.
The important concept here is the “expected outcome”, written E(X). Without going into the detailed math (I have covered that in another post), the expected outcome tells you whether your strategy is profitable over the long run.
If your expected outcome is positive (more than zero), it means that over time your strategy has the edge, and you will be profitable. If your expected outcome is negative (less than zero), it means that over time you will lose money. That single number is the whole game.
How is expected outcome calculated?
Expected outcome depends on two main factors:
Your hitrate (or winrate), which is your winning percentage. A 70% hitrate means you win 70% of the time and lose 30% of the time.
Your reward-to-risk ratio (RRR for short), which is how much you make when you win versus how much you lose when you are wrong.
Combine these two and you can calculate your expected outcome, which tells you whether you have the edge. In trading, doing your analysis and taking a calculated risk tilts probability in your favour. In gambling, the odds are always against you.
Can you be profitable if you only win 40 to 50% of the time?
Yes. You do not need a high hitrate to make money. You need a positive expected outcome, and there is more than one way to get there.
You can win less than half the time and still profit, as long as you make more when you win than you lose when you are wrong. For example, if you make 2 to 3 times your risk whenever you win, but only lose 1 times your risk when you are wrong, and you win 50% of the time, your expected outcome is still positive.
So it depends on the strategy. There are many combinations of hitrate and RRR that all give a net positive outcome. You could run a low hitrate with a high RRR (the example above), or a high hitrate with a low RRR. In a sense it is a trade-off. You just need to find the balance of hitrate and RRR that gives you a positive expected outcome.
How do you beat the casino? The law of large numbers
Here is the concept that ties it together: the law of large numbers.
We established that if you have the edge, your expected outcome is positive, and you will be profitable over the long run. But how do you make sure you last long enough to reach that long run? In other words, how do you avoid blowing up your account (losing all your capital) before your edge has time to play out?
In statistics, the law of large numbers states that the larger your sample size (the number of times you trade or gamble), the closer your actual outcome will be to the expected outcome. So the solution is simple.
Spread your money over many trades. The more trades you take, the more likely your results match your expected outcome, which is positive.
In gambling, you do not have the edge, so your best bet is the opposite: take a handful of large bets, and quit the moment you are up, because the longer you play the more likely you lose. By keeping the sample size small, you take away the edge the casino has over you.
The same logic cuts the other way for you as a trader. If you have the edge but you do not manage your money well, and you bet too big on too few trades, you hand back the edge you built. The activities look the same, but the optimal strategies are mirror images.
Can you actually follow the plan?
There is one more factor, and it is the one that quietly sinks most traders: the psychological and emotional side.
Because real money is at stake, many people cannot make logical decisions or execute their strategy systematically. If you have a strategy with an edge but you execute it differently, you are either giving up that edge or, worse, turning your strategy into one with a negative expected outcome.
For example, if you take profit too early, you do not fully capture your winning trades. If you do not cut losses, your risk runs larger than planned. Either habit changes your RRR for the worse. Your reward comes in lower than expected and your risk comes in higher than expected, so your real RRR is much worse than the one on your spreadsheet. That alone can be enough to flip your expected outcome from net positive to net negative.
It makes no sense to build a great strategy and trading plan, then refuse to follow it because of conflicting emotions. So before every trade, the real question is this: are you making a decision, or are you just guessing?
The real risk is the player, not the activity
In conclusion, the greatest risk is not trading or gambling itself. It is the player.
The risk is not in the activity. It is in the expertise and experience of the person doing it. Professional poker players are not gamblers. They win because they do not play by pure luck. They use a system that gives them an edge over other players in the long run.
People lose big in trading for one of two reasons. Either they trade with no method or system that gives them an edge, or they have an edge but fail to use it properly, taking single large bets instead of many small ones. This is exactly why position sizing, capital allocation, and risk management are such essential concepts in trading.
Emotions like greed and hope cloud judgment even when you know better, and they erode the edge in your strategy. Most traders see only the upside in their trades and not the downside, so they sell quickly to lock in a profit but hold on to losses, hoping they turn around. This is the main reason many traders who genuinely have an edge still cannot grow their accounts.
So if you want to be profitable in trading, keep these three things in mind:
Have a trading plan and strategy that gives you an edge.
Spread your capital over a large number of trades.
Manage your emotions and execute your trading plan.
Where the human edge comes in
A model can crunch your hitrate and RRR and tell you your expected outcome is positive. That part is now free. What it will not do is stop you from taking profit too early on the one trade that was supposed to carry the month, or hold your hand through a losing streak while the law of large numbers does its slow work, or keep you from betting the whole account on a single “sure thing”. The math is the easy part. Sizing the bet and following the plan under emotional pressure is the Human Edge, and it is the part no system can trade for you.
FAQ
Is trading the same as gambling?
No. Both involve luck, skill, and probability, but trading can carry a positive expected outcome (an edge), while casino gambling is built to give the house the edge. With a tested method and proper risk management, trading is a calculated risk, not a bet against the odds.
What is an edge in trading?
An edge means probability is on your side over many repetitions. Mathematically, it is a positive expected outcome E(X), driven by your combination of hitrate (win percentage) and reward-to-risk ratio. A positive E(X) means you profit in the long run; a negative one means you lose.
Can you make money if you only win 40 to 50% of the time?
Yes. A sub-50% hitrate can still be profitable if your winners are larger than your losers. For example, making 2 to 3 times your risk on wins while losing 1 times your risk on losses, at a 50% hitrate, gives a positive expected outcome.
Why do traders with an edge still lose money?
Usually because of money management and psychology. Betting too big on too few trades works against the law of large numbers, and emotions like greed and hope lead to taking profits too early and cutting losses too late, which quietly turns a positive expected outcome negative.
How do you beat the casino?
You cannot beat a true casino edge over the long run, so the gambler’s best play is a few large bets, then quitting while ahead. A trader does the opposite: build a real edge, then spread capital over many trades so the law of large numbers pulls your results toward your positive expected outcome.
Now that you have seen the real difference between trading and gambling, do you still think trading is as risky as gambling? And how would you explain it if someone asked you “is trading gambling?” Let me know in the comments below.
Want the system behind the edge? Grab the free 15-Minute Swing Trading Starter Kit. It is the exact routine I use to scan once a day and trade any market in 15 minutes.
About the author. Spencer Li is the founder of Synapse Trading and a Certified Financial Technician (CFTe) with 15 years of trading across stocks, forex, crypto, commodities, and bonds. His trade log is public, 404 trades, losses left in. He teaches low-risk swing trading in 15 minutes a day, one system for any market.
Education, not financial advice. Synapse Trading is not licensed by MAS to advise on investment products. Trading carries risk of loss; past performance is not indicative of future results.
https://synapsetrading.com/wp-content/uploads/2021/03/is-trading-really-risking-like-gambling.jpg7201280Spencer Lihttps://synapsetrading.com/wp-content/uploads/2019/10/logo.jpgSpencer Li2021-03-26 10:00:532026-07-06 03:22:00Is Trading Gambling? (How to Profit Consistently Like a Casino)
