How to prevent trading turning into pathological gambling

[nine]

There exists a thread: how to prevent trading turning into gambling and the initial post is:

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

Now IMHO, that thread suffers from confusion about what is implied by the word gambling. Gambling can be taken to mean "taking a chance" or "risking money" or "speculation" and only the most conservative trader should be concerned about trading being gambling in this sense.

Another issue raised is that of games with a potential positive expectancy vs those with a certain negative expectancy. The first group would include poker, blackjack and trading. The second group would include roulette and any game where your skill can not overcome the house's advantages.

But I think the real issue for traders is not one of definition but one of pathology. 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. Pathological trading is gambling non-professionally ... not truly to make money but for the thrill, excitement and joy.

"Gamblers (pathological) are playing a game of chance and behaving recklessly, largely for the thrill. Professional gamblers (traders) have specific intention integrated into all their actions and take calculated risks with the purpose of profit."


So, let me ask a modified version of Rav's question: How to prevent trading turning into pathological gambling?

 

[zupcon]

So, let me ask a modified version of Rav's question: How to prevent trading turning into pathological gambling?

Im going to take some flack for this from the "everything is known in advance" crowd, but the longer Im involved in this game, the more I believe that it all comes down to fully understanding the concepts behind your edge, and even more importantly by understanding the nature of random chance and its potential to influence the performance of that edge.

We use set ups as a psychological crutch, in an attempt to fool ourselves we have some degree of control over events and that the markets are acting in acordance to our own mental models. In reality, we have probabilities, and strategies for dealing with events as they unfold, and in the purest sense of the word we are gambling.

The answer to you question is simple (although far from easy to impliment)and its been answered 1001 times before, we control the only thing that we have any power to control. and thats our own behaviour

regards
zu

 

[stevespray]

The answer to you question is simple (although far from easy to impliment)and its been answered 1001 times before, we control the only thing that we have any power to control. and thats our own behaviour.

Well said!

Interesting that 'Pathological Gambling' is now the subject. I think that, to some degree, that there should be an element of excitement involved in trading. For me that excitement can come from following a set of rules which hopefully results in an overall profit being made. To some extent that feeling is part of the feeling of success.

Is that excitement a 'drug' and can it become addictive? In a word YES! Is that a bad thing? I think that it's down to the individual. Part of the skill of trading is clearly an element of emotional control. Can I suggest that the people who lose most regularly are the people who are in a hurry to make money quickly. They turn into people who chase losses and in turn evolve in people who can not be out of the market. When emotional needs over power trading logic and rules then it is most likely to be pure 'pathological' gambling.

As I have mentioned in the other thread, I feel that the key to trading is more about controlling the trade when it is running rather than the trade selection in the first place. The ability to manage positions is the most important part of this business as it is this aspect of trading which triggers the most emotional states of mind.

Of course lots of traders come to the market and many would call them gamblers simply because they dont have a money management plan. They trade in a manner where their risk of a massive draw down means that they are almost certain to fail. These people are technically gambling as they have a hugely negative expectation but it would be hard to call them 'pathological' gamblers since their gambling is more to do with inexperience.

Steve.

 

[nine]

Excellent points.

I think excitement and thrill can be as big a problem in trading as fear but not for the normally reason (gambling for thrill). I will try to explain that later in the thread I've started on psychology in trading.