How to prevent trading turning into gambling...

[RogerTheTrader]

Is your trading becoming gambling?

Timsk! Thanks for the welcome. More wit and wisdom to follow. I spent nine years under a spotlight extracting guffaws from strangers for gas (petrol) money and free drinks. Trading keeps me at home and makes more money. Plus, the soap is larger. I no longer feel like Gulliver taking a shower.

I love these boards. T2W has a more "proper" tone to it. Compared to American boards where they're killing the King's English, it seems that the Brits kept most of the punctuation, grammar and capitalization. I think a few of my compatriots would like to borrow your spellchecker, too.

Back to the topic of the original thread... my last post was a riff on the critics who label us as gamblers. But the real topic was whether or not your trading has turned into gambling. Several tests can determine if you're a trader or a dice roller:

1. Do you have a written trading plan? If not, you're at the air terminal demanding a ticket without a destination. You'll wind up a "Nowhere Man" (Now available on iTunes.)

2. Are you using a strategy? I trade US Exchange stocks and options.... I use Covered Calls on flat long stocks, just starting to do Strangles and Straddles, and some Spreads (or Spread-betting as you call it.). If I'm not in a strategy trade, I always use a stop and depending on volatility with options trades, a limit. Strategies, stops and limits are the armour that help you fight the fight. Without them, you're trading in a Full Monty.

3. Do you have price targets? Do you use Fibonacci Retracements? Without a reasonable target, you're in open water. Fibonacci Retracements have helped me tremendously. Before the Fibs, each trade was like standing on a shoreline and attempting to swim the span of the ocean. The Fibs turn the unknown future into a lap pool. I can swim a lap, but I can't swim the ocean. Your trades should not require swim fins.

4. Are you using money management? You should never risk more than 1% of your portfolio on a trade, 3% if you have a small account. Are you using your risk to determine proper position sizing? Without money management, you're approaching the market with a "Put it all on RED!" attitude. Unless you're surrounded by a bunch of smarmy blokes wearing sunglasses and caps, you should never think, "ALL IN."

5. How are you reacting emotionally to winning and losing trades? If your trading tools include a glass of sherry, an air horn and a violin, you may need to step away from the screen and have a chat with your inner trader. Wins are not occassions for knighthood, and losses are not a trip to the stockade. They are part of trading's topography. A good pair of hikers and a cool cucumber suit will get you farther than confetti and rye.

6. If the term is short, Techincals are of great import. Draw lines, look at candles, pay attention to the moving averages, and spot the patterns. Without chart analysis, trading makes you a pissed hummingbird in a balloon. Instead of watching the price bounce, you'll be the one bouncing.

7. News? Marvin Gaye once asked, "What's going on?" No knowledge of the news and you've fashioned a noose. The only swing trading you'll do is from the gallows.

8. Do you have a trading journal? Documentation beats conversation every time. An old Chinese proverb enlightens: A dull pencil is better than a sharp mind. A journal keeps you rooted in reality. Without it, you'll start believing your own fish tales.

9. Is your trading money money you can afford to lose? If you're trading with your landlord on the other line, waiting for an answer, you've got a problem. STOP.

10. Is being a great trader your passion? If money is all you think about, you're a lemming. You need to buy more gimmicks from the gurus on late nite tele. Successful trading is a highly prestigious skill. Treat it with respect. Ninety percent of traders fail. Within the first six months, 70% of traders will lose money and quit. You are attempting a feat. This is the equivalent of summiting Mount Everest. You won't get a parade for being a hiker, but you will if you summit. Work more on your skill than on your bank balance. Big paydays await the polished and persistent. Greed will leave you in need.

If you've determined you're not a trader and you're a gambler, come visit me in Las Vegas. I know a great place with dice, 21, buxom dealers and free drinks.

7 OUT!

 

[fuzzer54]

Why be defensive ? I have no problem with being classed as a gambler. Any activity that involves an uncertain outcome is a gamble. You may well have the odds and statistics on your side but at the end of the day I don't see how it is not a gamble if risk is involved even if you have discipline and have evaluated all possibilities.


Paul

By that definition absolutely everything would be a gamble..... then again, perhaps that's right, especially speaking as a man who's embarking upon his third divorce!

 

[charliechan]

Over the last couple of years I have been questioned by many and been told that gambling and trading both are one and the same and I have always been defensive that although it might seem like the same there is a vast difference......but what my post is trying to address is that ...
Do you face the following problem when you loose the profit you earn in a day and some of your equity and then you rush into the market to recover you loss.....your trading turns into gambling....what do you do to prevent this kind of behaviour ?
It would be nice to hear the experience of other traders and how they control the Schizophrenia of the trader turning to a gambler........

:idea: I have learnt that if you follow your trading plan and you make a certain amount of loss per day.
you should switch off your trading workstations and start literally focusing on other important parts of life so that you do not get the call from the Markets.............."come to me and loose it all"

All I deas would help a lot of people on these forums ...
Happy Trading

Rav

Successful gamblers are statisticians, not mathematicians. Some games are beatable (poker, blackjack, sports betting), others are not (roulette, craps, baccarat etc). Beatable games allow non-self weighting strategies. Non-beatable games are so because they demand self-weighting strategies. It seems SW strategies are used by new players, and non-SW by experts. Emotional make up or self-control also seems to play a part in this. The more self-weighting a player is, the more poorly he will play. The non-self weighting strategist waits until he has the best of it, and then takes maximum advantage of the situation. However, this still does not mean that you will win! (Gambling Theory and Other Topics by Mason Malmuth)

Self-Weighting is when your expectation and variance are roughly equal from play to play.

ring any bells?

 

[Silvershade]

Only my second post here, I'm just starting to get into trading having played poker online for a few years, gotten quite good and made a nice profit at it.

I think perhaps the OP misunderstands what it is to be a gambler, as the last post noted there are in fact games that can be beaten with correct strategy and money management ( poker for instance ). This it seems to me is not essentially different from trading. Both are about getting your money in when you have the best of it thus ensuring that you win more in total on winning ventures than you lose on losing ventures. A bad gambler does not understand this but a good gambler does, this is essentially why good gamblers make money and bad ones lose money. I'd venture to observe that trading is essentially the same.

I wouldnt compare trading to playing roulette, but as I noted above not all gamblers are mug punters destined to lose it all, trading seems to me to be essentially a beatable game in the same way as poker, as such I see it as a gambling opportunity, you bide your time, mostly you shouldn't play but when the circumstances are right you should get the money in with the best of it.

 

[Paul71]

I'm going to ask a few questions, just to see what answers are given really, on trading and gambling, if that's ok?

1) Would trading become less of a gamble for an individual, the more money they had to trade with?

2) Would trading become less of a gamble for an individual the more experience they had?

Any thoughts?

 

[charliechan]

I'm going to ask a few questions, just to see what answers are given really, on trading and gambling, if that's ok?

1) Would trading become less of a gamble for an individual, the more money they had to trade with?

2) Would trading become less of a gamble for an individual the more experience they had?

Any thoughts?

1/ yes, but only if they have nuff to remove bids n offers.
no, because if there is edge with correct risk management in a small account, money will quickly develop.

2/ of course

 

[nine]

The thread title is "How to prevent trading turning into gambling..."

This implies preventing trading (= good gambling by above definitions) turning into bad gambling. In good gambling Charlie and his reference says we wait patiently for non-self weighting strategies to become available and then we execute them. In bad gambling we get emotional, show poor impulse control and execute trades in ways that we shouldn't have if our goal is to make money from the markets.

So, any opinions on "How to prevent trading turning into gambling..."?

 

[ronblack]

So, any opinions on "How to prevent trading turning into gambling..."?

Just don't gamble when you are trading.

Ron

 

[Paul71]

The thread title is "How to prevent trading turning into gambling..."

So, any opinions on "How to prevent trading turning into gambling..."?

Hi nine.

Quite simply, learn how to trade.

Dicipline, knowledge and capital, use the three correctly when trading and an individual should reduce risk/gambling.

 

[davidtanwei]

Winner is gambler/trader

i bet on financial markets for the last few years.
My overall winning is amount to approximately $4000( inbetween has withdrawn,
however, overall is of that amount.) out of a capital $500.
Do i considered myself an trader or gambler? i really have no idea.
My strategy is to focus on how the price moves.

My friends who considered himself a trader has been making some loss. His strategy is of TA and FA. Most trader lost most of the time.

My conclusion would be: If you are able to maintain that period of profit consistently
for months and years to go. You are winner of a gambler and a investor. thats all.

 

[charliechan]

....

So, any opinions on "How to prevent trading turning into gambling..."?

plenty of self-control, self-honesty and the ability to understand that less is often more - in terms of time actually spent speculating, time in the market, and maybe also setting objectives.

easy to say, harder to do!

 

[Atilla]

plenty of self-control, self-honesty and the ability to understand that less is often more - in terms of time actually spent speculating, time in the market, and maybe also setting objectives.

easy to say, harder to do!

Hi everyone,

Why don't we have a poll here about whether trading is a gamble or not?

1. Share trading Yes No
2. Option trading Yes No
3. Spread betting Yes No

kind of thing.

Be interesting. Apparently we have to request it from Admin.

Does anybody want to add or construct any particular wording?

If not I'll request it from admin.

 

[RogerTheTrader]

Gambling or Trading?

I'm going to ask a few questions, just to see what answers are given really, on trading and gambling, if that's ok?

1) Would trading become less of a gamble for an individual, the more money they had to trade with?

2) Would trading become less of a gamble for an individual the more experience they had?

Any thoughts?

1. Account size makes no difference. To steal a line from the Bible: Be faithful when what you are granted is small and you will be granted much.

The same rules apply whether the account is small or large. Have a plan. Trade the plan. A young trader should do the same things an experienced trader does. At some point you'll earn another zero on the left side of the decimal, and then another.

2. Gamblers that are serious students of their respective game learn strategies and can elevate their playing status to the title of "professional". Some actually make a fine living from it. Experience is only beneficial if you extract the wisdom from it.

In either trading or a game of chance, what's most important is not what goes on between lines of support and resistance or what goes on between the next turn of a card; what's important is what is going on between your ears. What are you thinking when you're trading?

What I've gleened from highly successful traders: They approach trading incrementally. Consistent wins, no matter what the size, are more important than big payoffs. Losses are part of the game. Accept them and learn from them.

To use an analogy to American baseball: A player with a .333 batting average, all done by hitting singles, will wind up in the Hall of Fame. This man actually failed 67% of the time, yet he became a star.

Learn to hit lots of singles, consistently. Enjoy the home runs and grand slams, but don't approach every trade that way. If you're always "swinging for the fences", then you've got a gamblers mentality. It's trading, not a lottery. If you're looking for jackpots... Come to Las Vegas... We got a big wheel here you can spin. It goes, tick, tick, tick, tick, tick...

Batter up!

 

[RogerTheTrader]

Gamble or Not?

Hi everyone,

Why don't we have a poll here about whether trading is a gamble or not?

Is it a gamble or not? If you're asking: Is there RISK? Yes. There is risk in everything.

Eating my first wife's cooking had lots of risk and no chance of profit. She offered no support and lots of resistance and her trend line led to the shopping mall. So I thought I'd trader in and gamble on a new model, which subsequently hired an attorney, liquidated my portfolio, and left me in a naked short... forget trading vs. gambling... let's discuss the insidious effect EX-WIVES have on net worth. Don't trade TLB (x-wife's initials).

The poll could be interesting. However, how a person answers the question is really a reflection of how THEY trade and will provide little to make an impirical conclusion. 70% of traders are wishful and fail because they don't make the transistion, mentally, from gambler to trader. So the poll results are: 70% think it's a gamble, 30% think it's not + or - 5%. (I'll fade the gamblers.)

It comes down to mindset, preparation, discipline, strategy, execution, and a wee bit 'o luck. If those are your tools, it's not a gamble.

Successful traders prepare for success. Gamblers have a lot of hope and optimism. They are the most hopeful sons 'o bitches out there. The price can fall off the chart, roll on the floor, bounce down the stairs, tumble into the street, drop into the gutter and be carried off with the rats and the sewage and a gambler thinks IT WILL COME BACK... That's admirable!!!! Darn admirable. Gamblers are very religious, too. They tend to be quite prayerful whilst in a trade.

Gamblers love hot tips, and know exactly when to trade them. They rely heavily on luck, which is really the key to success. After a win, champagne. After a loss, self flagellation, cursing and an evening dressed in drag. They're a sick lot, too. Gamblers are regularly pistol whipped by fear and greed. And seem to enjoy it.

A trader owns a pistol and knows... when to trade fear... and... when to trade greed...
and if he's not quite sure... :idea: ...places a spread trade or a straddle

Psssst... the market's going up 300 tomorrow... put it all in... (this trade has a 70% probability). God bless you.

 

[Paul71]

1. Account size makes no difference. To steal a line from the Bible: Be faithful when what you are granted is small and you will be granted much.

The same rules apply whether the account is small or large. Have a plan. Trade the plan. A young trader should do the same things an experienced trader does. At some point you'll earn another zero on the left side of the decimal, and then another.

2. Gamblers that are serious students of their respective game learn strategies and can elevate their playing status to the title of "professional". Some actually make a fine living from it. Experience is only beneficial if you extract the wisdom from it.

In either trading or a game of chance, what's most important is not what goes on between lines of support and resistance or what goes on between the next turn of a card; what's important is what is going on between your ears. What are you thinking when you're trading?

What I've gleened from highly successful traders: They approach trading incrementally. Consistent wins, no matter what the size, are more important than big payoffs. Losses are part of the game. Accept them and learn from them.

To use an analogy to American baseball: A player with a .333 batting average, all done by hitting singles, will wind up in the Hall of Fame. This man actually failed 67% of the time, yet he became a star.

Learn to hit lots of singles, consistently. Enjoy the home runs and grand slams, but don't approach every trade that way. If you're always "swinging for the fences", then you've got a gamblers mentality. It's trading, not a lottery. If you're looking for jackpots... Come to Las Vegas... We got a big wheel here you can spin. It goes, tick, tick, tick, tick, tick...

Batter up!

I agree. Would your sentiment apply to an account that is financed by credit?

Thanks.

 

[RogerTheTrader]

Trade on Credit

I agree. Would your sentiment apply to an account that is financed by credit?

Thanks.

Margin? I trade my stocks on margin all the time. I consider it free money. By applying money management and knowing where you are on your margin, no single position can push you into a margin call. I've had them and just sold my weakest positions.

Is that what you were asking?

 

[Paul71]

Margin? I trade my stocks on margin all the time. I consider it free money. By applying money management and knowing where you are on your margin, no single position can push you into a margin call. I've had them and just sold my weakest positions.

Is that what you were asking?

I was thinking more along the lines of a bank loan, or something similar.

Thanks.

 

[RogerTheTrader]

Bank Loan? Hmmmm...

I was thinking more along the lines of a bank loan, or something similar.

Thanks.

Linesniffer,

You've asked a personal question and the answer lies in your confindence in your percentage returns.

At the end of the day, you'll be jumping over the spread on the trade, commission and loan interest before you put a pound in your pocket. If you're trading a strategy that produces high monthly returns, the costs become less relevant, if this is the only way you can produce the returns. A gainer is a gainer.

Albert Einstein said: Mankind's greatest discovery was compound interest.

The banker knows that all too well.

Calculate before you commit. Proceed with caution.

 

[Paul71]

Hi Roger.

Thanks for the reply. I personally do not use loans etc to fund my accounts, i asked the question to see the reaction of members.

You are correct in what you are saying, but, it does not seem to tie in with your previous psychology (see post 53).

This is just an observation of mine and in no way meant as arguementitive.

Can an experienced trader/gambler with a proven track record not overcome the psychological barriers of a long term loan with a small repayment plan?

I'm actually laughing to myself as i type this because members will absolutely pin this to me as,..."linesniffer is going to get a loan (yawn)...".

I'm not, i'm just interested in the debate, if there is any.

Thanks.

 

[RogerTheTrader]

Borrowing to fund account

Hi Roger.


This is just an observation of mine and in no way meant as arguementitive.

Can an experienced trader/gambler with a proven track record not overcome the psychological barriers of a long term loan with a small repayment plan?

Paul,

You bring up a good point... And I eluded to this in my reply... if you have confidence in your trading results... the loan just becomes a small piece of the whole.

Although, Paul, you're referring to the loan as a psychological barrier. To a young trader, it could be a financial barrier.

There are many young traders that have imaginery returns in their head and don't do the calculations before they commit to additional costs that will challenge their trading results.

Later this year, I plan to purchase a new home. A portion of my account will be applied as a downpayment. Once I'm in, I'll borrow as much of the money that the lender will allow against the property to add back into my trading account. I can produce results that exceed the annual cost of the loan. And the loan interest is tax deductible for me. The mathematics work.

That is why I trade on margin. I know I can beat the cost of the loan from the broker for the funds. But this is my "business" - trading. It's part of the cost of doing business.

I hate to see a neophyte get starstruck with riches and extend themselves into debt. When I began trading in 1997, I had an account of $26K... I studied for months to make my five trades. I placed the trades (without stops, exit strategies, etc.). I went abroad and returned three weeks later to find my account was magically worth $13K. It took me a year to recover. If that was borrowed money, not many nights would have been restful in the wake of my debacle.

Trading is a skill that takes time to develop. After ten years of stock trading on the side and launching full-time this January by expanding into options, I consider myself but a seedling. Each week I'm honing strategies. I have very distinct goals and a very clear vision of where I'm going. The "gambler" trader doesn't have those components in their psyche.

When I owned a business, I always said, "Focus on percentage and not the dollars." Compounding will make the dollars (pounds) arrive soon enough. All gains start as a percentage of the whole. A 6% gain per month, compounded, will double your account in a year. Starting with $3,000 and gaining 3% a day and compounding it will become over $1 million in a year. 3% is $90. You can start small. The progression is not easy, but the numbers are real.

Where we've gone with this discussion, which you deftly lead us into, is to squash the notion that you can't make any money if you have a small account. Great oaks start as seedlings... but they won't grow if you bury them under six feet of dirt.

Have a great weekend.

Don't forget to water your garden.