How to prevent trading turning into gambling...

[Paul71]

Thanks, Roger, and have a good weekend.

Good trading.

 

[Crap Buddist]

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.

Didnt one of the market wizards, or was it in money masters? anyway, that chap knew it made perfect sense for him to raise a loan on his house, to get cheap money.Because he knew he would outstrip the interest payments. So in that sense why not borrow all he could and he did.

If that guy could borrow at a rate of £40.00 per 10 K , then I could see why he snatched it up. He probably approached it just as a financing cost (bloody cheap one too) , as would any business who borrowed capital for reason x.

What about these guys who pay desk fees of over a grand a month ?

So if for example we use an example of a trader who raises $100,000 at a interest rate of $400.00 per month, he could leverage at 20-1 which be $2 million, and look to flip that over in the market each day a take what, a return of 0. 1 % would be $2,000.00, a return of less, 0.033% = $660.00 or roughly 6 pips per day. at 20-1 leverage.



Think my maths is correct.

What about a business who borrows to provide cash flow ? on some shop or stock of latest widgets ? thats far more scary . All the banks have nice business managers who will help a nation of independent shopkeepers expand their empires, Chuck money at em.

Its just money,a business, as with any business theres risk. 100 years from now who will give a sh!t ?

What did danny devito say something about "other peoples money" aint we all trying to get it ? And then do with it what we do . Snort coke, big houses, remain humble, give. Be arrogant. Whatever.

We are just temporary custodians of money, what does money mean? The yardstick of an individuals self worth ? The result, a score in the game?

or The byproduct of an individuals or an entities performance.


I used to work for someone once, they had been in business, for a decade, good success, but things changed, they lost everything, the banks wanted secured on assets. They had to liquidate.

Think they got government housing after etc. But they took risks, I admired that, was grateful for them as it gave me an opportunity.

What i think is a greater tradegy is people who are held back by the fear of not wanting or not feeling able to try.

But also my daughter was at college, and one day her friend said, that her Uncle who run a small business that hit hard times, the uncle killed himself and left his wife and 3 children. He did this according to his niece because of money worries. Thats tragic. That guy was trying to provide . Running a convential business. I see him as a winner for stepping up to the plate in the first place.

 

[Paul71]

Didnt one of the market wizards, or was it in money masters? anyway, that chap knew it made perfect sense for him to raise a loan on his house, to get cheap money.Because he knew he would outstrip the interest payments. So in that sense why not borrow all he could and he did.

If that guy could borrow at a rate of £40.00 per 10 K , then I could see why he snatched it up. He probably approached it just as a financing cost (bloody cheap one too) , as would any business who borrowed capital for reason x.

What about these guys who pay desk fees of over a grand a month ?

So if for example we use an example of a trader who raises $100,000 at a interest rate of $400.00 per month, he could leverage at 20-1 which be $2 million, and look to flip that over in the market each day a take what, a return of 0. 1 % would be $2,000.00, a return of less, 0.033% = $660.00 or roughly 6 pips per day. at 20-1 leverage.



Think my maths is correct.

What about a business who borrows to provide cash flow ? on some shop or stock of latest widgets ? thats far more scary . All the banks have nice business managers who will help a nation of independent shopkeepers expand their empires, Chuck money at em.

Its just money,a business, as with any business theres risk. 100 years from now who will give a sh!t ?

What did danny devito say something about "other peoples money" aint we all trying to get it ? And then do with it what we do . Snort coke, big houses, remain humble, give. Be arrogant. Whatever.

We are just temporary custodians of money, what does money mean? The yardstick of an individuals self worth ? The result, a score in the game?

or The byproduct of an individuals or an entities performance.


I used to work for someone once, they had been in business, for a decade, good success, but things changed, they lost everything, the banks wanted secured on assets. They had to liquidate.

Think they got government housing after etc. But they took risks, I admired that, was grateful for them as it gave me an opportunity.

What i think is a greater tradegy is people who are held back by the fear of not wanting or not feeling able to try.

But also my daughter was at college, and one day her friend said, that her Uncle who run a small business that hit hard times, the uncle killed himself and left his wife and 3 children. He did this according to his niece because of money worries. Thats tragic. That guy was trying to provide . Running a convential business. I see him as a winner for stepping up to the plate in the first place.

Good post, CB.

What about running debt/credit through various accounts taxable/non taxable, company accounts set up as trading accounts etc?

Unsecured debt is the key phrase here.

'If' i were to ever get into trading from credit such as loans etc i would do it all in a way where i could just basically walk away from it with the least possible fuss if it all went to the shape of a pear.

What i'm talking about here is my own personal small print, if you know what i mean?

Back to the bigger picture though, if i did go that way it would have to be excellently structured for success, not failure.

 

[Crap Buddist]

Good post, CB.

What about running debt/credit through various accounts taxable/non taxable, company accounts set up as trading accounts etc?

Unsecured debt is the key phrase here.

'If' i were to ever get into trading from credit such as loans etc i would do it all in a way where i could just basically walk away from it with the least possible fuss if it all went to the shape of a pear.

What i'm talking about here is my own personal small print, if you know what i mean?

Back to the bigger picture though, if i did go that way it would have to be excellently structured for success, not failure.

Im buggered if I know.

Is the best route to set up as a limited company maybe, be a director. ? Not sure if you could easily get borrowings, but if it did go tits up and im sure theres a fair few company directors who have tried and failed but worst case i think is they get banned from being a director for a few years 3 or 5, then all debts are written off.

What do they do ? Start again, another attempt

There must be an accountant lurking, hmm JohnG (think he said he was ACCA or something) , should have knowledge or maybe able to comment on best route/ options for assuming a limited liabilty tag.

 

[Profitaker]

Anyone that calls trading gambling is really saying, "I have no clue what the markets are about. I really wish I could make money, but I'm too lazy to study even one stock or index and would rather slave away at a job for the rest of my life and settle for less. In the meantime, I'll mock you because that makes me feel momentarily superior and represses my fear that you could be getting rich with all of your hard work. And if you do get rich, then I'll say you were just lucky or it was all chalked up to just happening to be in a bull market when no one else was looking."

That’s a bit harsh !

Everyone that buys an index / stock thinks the price will go higher, and the one selling to him thinks the price will go lower. It is this constant disagreement and arguing that makes a market in the first place. If the markets were predictable then there wouldn’t be a market.

Because I don’t know you, I’m not in any position to say that you personally can’t predict a market - maybe you've found the holy grail, I don't know. What I am saying is that the vast majority can’t predict the market. I would also venture to suggest that the vast majority of traders lose money, not because they can’t predict a market, but because they think they can.

 

[RogerTheTrader]

Harsh?

That’s a bit harsh !

Everyone that buys an index / stock thinks the price will go higher, and the one selling to him thinks the price will go lower. It is this constant disagreement and arguing that makes a market in the first place. If the markets were predictable then there wouldn’t be a market.

Because I don’t know you, I’m not in any position to say that you personally can’t predict a market - maybe you've found the holy grail, I don't know. What I am saying is that the vast majority can’t predict the market. I would also venture to suggest that the vast majority of traders lose money, not because they can’t predict a market, but because they think they can.

My remark that you quoted was directed toward those that are not traders. I'm a bit tired of meeting people and responding to the querry, "What do you do for a living?" and telling them that I trade stocks and options, and then they go off on all these analogies that trading isn't any different than standing at a crap table.

I play craps. The amount of preparation it takes to play craps is zero; unless you like a cocktail before you roll the dice. I've spent about seven hours since the market closed on Friday reviewing stocks, drawing lines on charts, checking technical indicators, etc. I've got a fine list of stocks that are setting up for a move, some up, some down. I'll put in another two or three hours of research before the market opens on Monday.

If trading was JUST gambling, I believe there would be no need to do any preparation. Or I might consider splitting my time equally between the market and the crap table. Is trading a gamble? yes if you do no preparation. There is risk for even the most experienced trader... but I don't consider it a game of chance; hence my feeling is that it is not "gambling".

I live in Las Vegas. Those of us who live here know very well what gambling is and many locals only partake sparingly, if at all. Gambling has a strongly negative connotation. When it goes beyond entertainment, it destroys lives. So when someone classifies what I do as gambling, I am quite offended. I don't believe I'm in the same category as a bunch of senior citizens watching a monitor B-7, G-8, ... BINGO!

Can you win on every trade? Absolutely not.

You're completely correct, 70% of people who wish to be traders lose money and quit after six months. 90%+ of day traders lose money. Trading is a highly complex game. You referred to the buyer/seller relationship as an "argument". Trading is a study in emotion. The traders that can leave their emotions far from their trade station and learn to use the emotions of others to their benefit are successful.

The billions of dollars of casino properties in Las Vegas were not built because there was a cadre of winners at the tables and machines. There is a miniscule group of people in the world that make money at gambling (poker, ponies, etc.). There are quite a few traders that make a rather fine living. And I don't believe you can credit their success over a lifetime to luck.

At the casino, the odds are against you. In the market, the odds are, it will go up. Looking at a 100 year chart, since 1932, the DOW has been in a what can be classified as a bull market, which had a long consolidation period during the 1960's and 70's. Odds are, it is going up in the future. It's the short term wiggles that pick your pockets. Right now, the odds are your stock will go up. Last year in May, the odds were your stock was goin down. Yet, even when the odds are in your favor, ie: going up, you can select a poor stock or a weak sector or bad news is released or you bought when it was overextended.

In bull markets even the fools can get rich. Bear markets expose all of your trading faults. And that's why the weekend player gets out when the market goes down.

What makes the markets so beautiful are the dynamics of fear and greed. In gambling, there is only greed.

I've got to get back to shuffling my stocks. I hope I get a good draw on Monday.

 

[Profitaker]

Roger

Appreciate your considered reply.

If there is any uncertainty over the profitability of any trade then it must (by definition) be a gamble. If there is certainty then it must (by definition) be an arbitrage. To my mind, there is either certainty or uncertainty, risk or riskless, black and white, not grey.

Personally, I’m not offended when somebody calls me a gambler. I know I cannot predict the market, and because I am well aware of this severe limitation of mine, it helps me in my daily battle to extract money from those that think they can.

The title of this thread is “How to prevent trading turning into gambling” – I say trading is already gambling. I also say (and have said before) what’s wrong with gambling ? After all if it wasn’t for gamblers we’d still be living in the stone age. Gamblers should be admired.

Some will find the above paragraph offensive. Now I’ll change the word “gambler” to “risktaker” and see how much better it reads below….

The title of this thread is “How to prevent trading turning into risk-taking” – I say trading is already risk-taking. I also say (and have said before) what’s wrong with risk-taking ? After all if it wasn’t for risk-takers we’d still be living in the stone age. Risk-takers should be admired.

What’s in a word ? Is it really important ?

 

[stevespray]

Interesting thread. Very enjoyable read.

I'd like to throw a bit more fuel on the fire!

The wording 'gambling' is very subjective in my opinion. This makes it very hard to classify what is 'gambling' and what is 'speculation'. Profitaker introduces 'risk-taking' as a substitute but again this is surely further subjectivity.
Gambling, as most people see it, is speculation on something which generally has a negitive expectation. As an example I would suggest that most people associate the word 'gambling' with words like casino, blackjack, roulette wheel and horse racing. Most if not all of these things are negative expectation from the clients perspective. You are in effect sold something for more than its actually worth. In these cases you risk and reward are both fixed in advance of the event.
What sets trading apart from these is the fact that your potential profits and losses are not fixed. It is up to the individual set where they take a profit or a loss. This is actually the key point as to where most people go wrong in my opinion. In my experience it is not the entry to a position that is all so important but more the management of the position when it is open. Most people, if they take the trouble to look at their trading records, will find that they make as many good trades as bad ones. The reason that most people lose money in trading is because the value of their losing trades outweigh the value of their winning trades. Most people miss this point. As a result they undertake a search for systems which predict a higher percentage of winners rather than a system which makes trade management easier. My experience has taught me that the running of winners / cutting of losses is 10 times more important than trade selection. Of course, in gambling, these points can not be considered because there is no opertunity to 'run a position' as the result is simply determind by the spin of a wheel or the shake of two dice. Therefore, no matter what money manage is employed, the house edge will always prevail. To speculate under such a circumstance is surely gambling?

Trading is surely 'risk taking' but, in my opinion, it doesnt automatically make it gambling which is what is implied. To suggest that it is gambling suggests that a particular trade only has a number of pre-determind outcomes? To win at gambling you have to be 'lucky' - something which you can not control. To win at trading you have to be skillful - something which you can control.

In my opinion, and to answer the original question, trading can become gambling when someone shows such a lack of skill. In order to succeed in the longer time frame a trader needs to master both money management and trade management skills. At no point does luck enter the equation.

Steve.

 

[ammo]

the only difference i see between trading and gambling is that in trading you have charts ,support,res,fibs,plenty of technical tools and news and earnings reports .....gambling is just the same game without the clues...trading is just very cerebral gambling,

 

[Profitaker]

Steve / Ammo

I found this rather eloquent quote by KIWI on a thread with a similar title and took the liberty of copying it here (hope you don't mind Kiwi).

"Skilful trading is a form of gambling but it is the gambling of a professional - gambling to a plan for the purpose of making money not for the thrill."

and also....

"Pathological trading is gambling non-professionally ... not truly to make money but for the thrill, excitement and joy."

Very sucinctly put, IMHO, and actually gets to the crux of this thread.

I am a professional gambler.

 

[Crap Buddist]

What about when someone typically starts out? entering and getting blown out all over the shop. Impulsive bets, revenge bets, the emotion of the human is in full control, rather than the human is in control of his emotions?

So I mean we start off as gamblers? and become traders, or speculation professionals.

Now I would say if a person reaches the point of being a trader, then he wont turn into a gambler. As sh/e has likely thrashed out and resolved any gambling traits, or gamblers emotions.

So I see it kinda like this.

Any rookies task is to answer maybe . How to turn gambling into trading. :?:

Again a trader will not very likely after years of condtioning start gambling will they ?

Of course if some buddies are going to a casino for a punt on whatever then they might enjoy spending money having fun etc..... so they consciously gamble.

 

[RogerTheTrader]

Roger

The title of this thread is “How to prevent trading turning into gambling” – I say trading is already gambling. I also say (and have said before) what’s wrong with gambling ? After all if it wasn’t for gamblers we’d still be living in the stone age. Gamblers should be admired.

Some will find the above paragraph offensive. Now I’ll change the word “gambler” to “risktaker” and see how much better it reads below….

The title of this thread is “How to prevent trading turning into risk-taking” – I say trading is already risk-taking. I also say (and have said before) what’s wrong with risk-taking ? After all if it wasn’t for risk-takers we’d still be living in the stone age. Risk-takers should be admired.

What’s in a word ? Is it really important ?

I like the idea of changing the thread to "How to prevent risk-taking from turning into gambling."

As stated before, gambling, to me, is a dice roll. You can do it with your eyes closed. Some traders approach the market the same way. And you stated correctly, they're in it for the thrill.

All business ventures involve risk. If you approach your trading as a business, your probability for success will increase.

Happy Trading...

 

[laptop1]

Trader A and Trader B, will both enter the trade the same time and the same price and a stop of 15 pips. The market moves in their favour by 10 pips.........So, Trader A will move his stop to break-even, Trader B leaves his stops 15 pips away.

The market now starts to move down to their entry price and finally hit their entry price. Trader A is now flat. However Trader B is still in the trade, the market is getting closer to his stop, so he decides to move his stop to 30 pips, he thinks it's only a minor pull back. but the market continues to go down to his new 30 pip stop, so he decides to remove his stop, he get's angry, because he should have taken the 15 point loss The market is now down 50 pips Trader B has turned a day trade in to a position trade, This is what I call gambling.

Trader B was a gambler, but Trader A got out with no damage to his account because he controlled the trade. Trader A is not a gambler he take's calculated risk only, this is a big diffrence to the gambling Trader B.

 

[new_trader]

Trader A and Trader B, will both enter the trade the same time and the same price and a stop of 15 pips. The market moves in their favour by 10 pips.........So, Trader A will move his stop to break-even, Trader B leaves his stops 15 pips away.

The market now starts to move down to their entry price and finally hit their entry price. Trader A is now flat. However Trader B is still in the trade, the market is getting closer to his stop, so he decides to move his stop to 30 pips, he thinks it's only a minor pull back. but the market continues to go down to his new 30 pip stop, so he decides to remove his stop, he get's angry, because he should have taken the 15 point loss The market is now down 50 pips Trader B has turned a day trade in to a position trade, This is what I call gambling.

Trader B was a gambler, but Trader A got out with no damage to his account because he controlled the trade. Trader A is not a gambler he take's calculated risk only, this is a big diffrence to the gambling Trader B.

2 people, A & B walk into a casino and sit at a Roulette table. Before placing a bet they decide beforehand that they wouldn't spend more than £50 each. Gambler A has a few lucky spins and decides to walk away with winnings of £20. Gambler B has the same wins but feels lucky and decides to continue. His luck turns and he is now down £30. He wants to win his money back so he continues playing. Now he has lost all his winnings and his original £50. He goes to the ATM and withdraws another £50 and sits back at the roulette wheel.

Which of the 2 gamblers has the potential to be a good trader?


P.S: In case my point was obscure-- Even good gamblers have rules and the discipline to stick to them.

 

[GeedoubleU]

Trading is Gambling, the question is more do you have a problem.

A problem is when you random guess at which trades to do, trade based on emotions such as after a loss or make trades that are hgh risk of losing all your assets.

Trading is not a problem, when you are a professional Gambler and analyse data before placing your bet and stay constantly aware of your risk.

Make no mistake trading is gambling, but gambling is not a problem if done professionally.

An insurer gambles on whether you will make a claim or not, they make educated guesses based on statistics which they analyse.

There is no difference between a professional gambler and a person that analyses the horses and has a strategy that makes money.

 

[Profitaker]

Absolutely agree GeedoubleU.

 

[zagreb]

Yes, pretty clear explanation. More colorful one would be: traders are pros and gamblers are amateurs on both activities. Sort of gambling per se is implemented into much more activities than one would suppose.

 

[SmartTrader]

Changing the Perspective Framework

It's a great idea to change "gambler" to "risk-taker" to look at this psychological issue in a different way.

I find that many seasoned and professional traders view trading as a "business". It's usually only those who are relatively new to trading who find it difficult to bring that perspective to trading.

Like all businessowners, traders take risk. And in the same way, both business owners and traders have to do their homework, research their markets, plan their cashflow, take note of their existing resources, review the advantages/disadvantages of doing business in certain ways, and then commit to their course of action.

It only becomes a gamble when one is going in for the "quick buck", but as most of the seasoned and professional traders here on this board will tell you, if you're looking for a quick buck, the quick buck you see will be the one leaving your pocket.

One may not agree to the "ethics" or "value-adding" process of any business, but trading is just a business like any other. Instead of learning how to manage customers and staff, you have to learn how to manage yourself. Instead of taking a random, reckless "bet", do your research, create your trading plan, and execute it.

The main differences I see between a "proper" business and trading is that in trading, you can test your trading systems on paper (although the emotional value doesn't come close to trading with real money), while in business you can't "paper-business" a business.

The point about handling your peers, colleagues and associates telling you trading is gambling is valid for sure. The simplest solution? Don't talk to them about it.

Start to mix around and socialize with successful traders, learn how they think, why they trade the way they trade, and learn/test as much as you can.

I believe that most of the traders who have been awhile for some time have gone through this phase in their trading career. I know I have!

Make no mistake, to trade profitably is to trade like a business. And like all profitable businesses, it takes time, effort and discipline. Plus a lot of research and brainwork, and the occassional nights of sleepless stressful dreaming. :cheesy:

 

[fxwinner22]

Trading is gambling.

no matter how you dress it up you are a gambler.

gambling is placing bets on an outcome of which you have no control. even if you have the illusion of control you are still a gambler.

Unless you enough money to move the market in your preferred direction then you are a gambler.

if you win often you are still a gambler

if you lose you are a gambler.

if you have a system you are a gambler - just as the card counters are gamblers - you with your system are also a gambler.

the man who runs the corner shop is a gambler - he buys food at a price and hopes to sell at a higher price - it's a gamble - all business transactions are gambles unless the outcome is guaranteed 100% sure thing.

anything less that 100% is gambling.

get over it - we are all gamblers for a living.

 

[Profitaker]

if you have a system you are a gambler - just as the card counters are gamblers - you with your system are also a gambler.

Indeed. To the untrained eye, the blackjack card counter will look just like any other loser in the casino. The reality, of course, couldn't be further from the truth.