I grew up in a small town outside of Las Vegas. One summer a group of teachers decided to get jobs in one of the casinos during their summer vacation. For fun, they pooled their resources to see what would happen if they continuously played a single slot machine until it hit the jackpot. They lost about a fourth of their money. This story shows what we all know: Casinos don't let recreational gamblers break even. The free drinks, the entertainment, and hotel rooms have the sole purpose of getting recreational gamblers into the casinos to gamble, and lose. Casinos make sure the odds are in their favor. All they have to do is wait, let people gamble, and watch their coffers overflow with profits. Recreational gambling can be fun as long as you limit your losses and know when to quit. That said, if you don't manage risks, trade with a reliable trading strategy, and trade your plan, trading can be seen as every bit as reckless as recreational gambling.
Perhaps one can argue that any form of financial risk is a gamble, but surely some risks are more of a gamble than others, and some people approach trading with the mindset of a recreational gambler whereas seasoned, winning traders view trading as a profession.
To the general public, gambling has many negative connotations. When professional gambling is mentioned, most people immediately think of compulsive gamblers who seek out high levels of unpredictable risk and impulsively lose their paychecks, and money that is crucial to their basic survival. But gambling is not necessarily "bad" or "evil." Indeed, professional gamblers make a good living by taking the right kind of risk. It's all a matter of cultivating the right mindset. It is vital to make a clear distinction among compulsive, amateur traders and professional traders. Trading should not be approached as a form of recreation. Amateur gamblers, or social gamblers, are interested solely in enjoyment and entertainment. Smart recreational gamblers budget a fixed amount of money for gambling entertainment and spend it as they would for a movie, concert, sporting event or some other fun activity. Part of the fun of social gambling is getting a thrill, and the hope of finding Lady Luck on one's side and winning a big jackpot.
Traders who put on trades to get a rush and a feeling of euphoria act like compulsive gamblers. Impulsive traders have absolutely no discipline. Obviously, trading is no place for the trader with a need for shear excitement and risk. But many novice traders, unfortunately, make the mistake of applying the amateur, social gambling mindset to trading. They view trading as entertainment. If you've got money to burn, there's no harm in taking this attitude toward trading, but most of us want to make profits. And a social gambling mindset can quickly wipe out your trading account. If you are serious about trading professionally, changing this mindset is vital. You may find trading enjoyable, but the main objective of professional trading is making profits. Not only does that mean building winning trading skills, but careful risk management, discipline, emotion control, and executing trading strategies in a peak performance mental state.
Do you trade like a professional? It is vital to examine your risk-to-reward ratio before making a trade. It's also essential to trade with money you can afford to lose, and to limit the amount of risk you take on each trade. Make sure you can survive a drawdown, and avoid wasting your precious capital on low probability setups. Don't put on trades just to get a rush of excitement. Make sure you have a detailed trading plan and trade the plan. Be careful. Seek out high probability trade setups, and stand aside until you find a setup where you can win. In gambler's parlance, "you've got to know when to fold 'em." It's impossible to make money without risking it, but there is a huge difference between reasonable risk and recklessness. Winning traders know the difference and don't take unnecessary chances.
By Michael S. Shopshire, Ph.D; Mental Edge
No comments:
Post a Comment