The Danger of Gambling Psychology in Trading
If you trade like a gambler, you’re bound to lose money. You’ll make bad trades. You’ll throw good money after bad. And eventually, you’ll find yourself wondering where all your money went.
(Hint: Wall Street took you for a ride!)
Fortunately, there are a few simple mindset shifts that can turn your trading around, sometimes overnight.
Mindset Shift #1: Don’t Chase Trades; Let Them Come to You
Gambling produces some strange responses in people. If a gambler wins once, he’s likely to keep gambling until he wins again… even if he loses a small fortune along the way. And if he loses, he’s likely to keep gambling in an effort to “win back” what he lost – even if he continues losing.
These behaviors are not unique to gamblers; traders are guilty of doing the same exact things. If we win a trade, we try to force another winning trade – even if the second trade is doomed. And if we lose a trade, we try to quickly make back what we lost on the next trade.
This irrational behavior is caused in large part by our cultural conditioning. All of us are hard-wired to work 40 hours a week. If we work any less, we somehow feel that we don’t deserve the money we’re making. We believe we must “work hard” to earn a living.
This belief often carries over into trading, and so we “work hard at trading.” We enter trades even when there aren’t any good trades available. We trade for trading’s sake. Then, when our poorly placed trades move against us, that gambler’s fear of loss kicks in… and we begin making even more foolish decisions, which compounds our losses.
It doesn’t take a genius to see where this behavior will lead. So here’s a suggestion: Once you understand what makes a good trade versus a bad trade, let the good trades come to you.
One of the best ways to do this is to monitor just a handful of stocks, options, or currency pairs and become familiar with them. Over time, you’ll understand the price movements better, and you’ll be able to spot good trades more easily.
You don’t have to trade every day or even every week to make a very good living as a trader. You only have to make a few good trades when the opportunities present themselves. In trading, patience is most definitely a virtue.
WHAT CAN I EXPECT TO EARN?
Earnings are dependent upon many things.
#1, The size of your account (The size of your account limits how many lots, stocks, or futures contracts you can buy or sell. I recommend to all of my students to start very small. If you follow my program, I can pretty much tell you that you will beat Wall Street, which isn’t saying much.) You will also beat 99% of all the mutual funds. We often can make more in one month than these popular entities make in a year. Sometimes in a week. It all depends upon your skill level, your strategy, your system, and your ability to follow the safety rules.)
#2. Your tolerance for loss in a trade. (Some have no tolerance, and they should not try trading. Many great trades give a small loss before the deliver the payload of profits. No matter how great or correct or timely a signal is, the market has a right to try to throw you off of the train before it really gathers steam. Is this the market maker trying to make more profits? We many never know, but I teach how to expect and recognize retests and protect yourself.)
#3. Your ability to follow the rules. (Trading rules are important. You might defy them and break them, and still be successful. You might also get yourself in trouble. My tutoring can teach you the correct trading methods, but I can not force you to follow them. Some mules are just stubborn. Ha.)
#4. Your ability to not freeze when a trade turns to a loss. (I teach techniques for avoiding this frequent trader problem. If you practice those techniques, you will never have this problem.
#5. Not Being Greedy. (I work hard to teach my students to take what the market gives us, and not try to force it to give more. I teach you how to not let a winner turn to a loser. This gives anyone discipline and saves them from their own greed. Some have unreasonable expectation for beginners. I have prospective students who ask if they can make 100% a month! What? What planet gave them that idea? I urge students to be realistic in their goals. A recent Futures student with a $2,000 account wanted to make $5,000 per month because that is what he needed to meet his family needs. That is totally unrealistic. He did not sign up with me. That is O.K., because I want students who will listen so they can be successful. His greed based upon his need is going to result in overtrading and he will probably lose it all.
#6. Your Patience Level. (Video game players can become excellent traders if than can kill their need for constant action. Good successful trading is NOT A THRILL A SECOND. If that is what you seek, stay with the video games. They are great.
To try to have non stop thrills and action in trading is a death wish. Yes, once you are in a trade, your adrenalin level will rise as the move goes up and down and all around.
Good trading requires waiting for the right signal. That is the hardest part of trading. There are many great trades every day in stocks, futures, or Forex, but in any one stock, or currency pair, or future contract, there may be no trades at this time. You have to wait, watch, monitor, and time your trades. The gunslingers who want to be trading every minute will lose.
. My philosophy is that most people do not have the patience to stay with day trading for than a few hours a day. My signals could give you trades all day and all night, but waiting for the signal to develop is time consuming.)
#7. Your Willingness To Invest the Practice Time. (Those who think they can become a great trader and make lots of money without investing some time to practice and learn the skills are doomed to failure. The lazy traders fall for all the hype programs, such as green vs. red button programs, down arrows and up arrows, etc. They want to push a button, walk away, and come back later and pick up their winnings. That just does not work in anything.
#8. How many trades can I make in a day? (That is really a great question. I recently did a research project. I wanted to know how many great set up trades there were in the best recommended trading times versus the slow dead times of the day. To my amazement, the slow hours produced 80% of the number of trades the prime hours did. There were magnificent trades at any hour of the day.
Now to catch them and find them is another story. What I would like to compare, and can not as it is just too laborious, is what is the amount of win in each of those trades and compare the prime hours with the dead slow hours. Some of the trades during the slow hours appeared to be as huge and profitable as the best of the prime time trades. I gave no credence to the news releases in my study as well.
You can make all the money you want with just one trade a day. The very best setups may only occur once a trading session (two to three hours). Some days there are no good setups. Sometimes I have to wait 15 to 30 minutes for the trade to really trigger correctly, and hit my goals. It is usually less usually less than 1 hour. Sometimes there are so many trades so quickly you have to choose amongst them.
In Futures, given any single trade, the amount you make depends upon the size of the position you take.
What is amazing is you do nothing different. You do not need to make more trades. One good trade, one great set-up, and the patience to wait for the “safe” set up to occur, is the best type of trading. Why work yourself to death overtrading. One of my Stock students from Florida was trading 10 to 15 stocks at a time. It was taking him a lot of time to try to monitor all of those positions. I have gotten him down to five (I tried to get him to three.) With great signals, and a great protection system in place, you do not need a lot of positions which just complicate your life and make it difficult for you to manager your trading.
Many safe set ups occur every day in stocks or Forex, or even Futures. I am giving away a lot of good advice here, and to learn more, you need to sign up for my program.
#9. How big is my risk? How much could I lose? (DO NOT RISK ANY MONEY YOU CAN NOT AFFORD TO LOSE. IF LOSING THE MONEY WOULD HURT YOUR LIFE STYLE OR BUDGET, THEN DON’T TRADE. I encourage all my students to start small. You have a whole lifetime. Everyone wants to be a millionaire tomorrow. Take your time. Take the turtle approach. Slow, methodical, and cautious. I teach you how to do that.
Do you really think you can teach me? I was not a good student in school! (Once you master what I will teach you, and eventually I will pound it into your head, because I am a professional teacher and have taught at all levels for years. (Assuming you do your part and do the practice and homework I recommend), anyone can do it!
Sometimes I see the slow learner taking their time and eventually proving to be the better trader, that the hot shot risk taker with no fear. Fear of the markets is a good thing! I can make a lot more recommendations when I know more about you, your experience, your employment, your available time, and your financial situation. I have students start with $1000.00 in Futures and quickly build up their account. They accept small gains every day, and bigger ones each month.
#10. Are you going to be trying to sell me something additional late like I have experience with other programs? (I have nothing else to sell you but my training. Unfortunately for me, my students start making money and forget about me. Others keep me around to answer questions or get my imput later on about a trade. Essentially I work myself out of a job. I do not represent any brokerage or anyone else.)
WHY YOU SHOULD GET INTO THE HABIT OF INSTALLING A STOP LOSS ORDER.
As a new trader, you will be unaware of how fast the price can move sometimes. What causes it to move with such speed will remain a mystery. Maybe a news release. Maybe a very large order or orders. Maybe something may happen within the another country. No matter the reason, the price can move FASTER THAN YOUR REFLEXES.
So the boring time consuming drill of putting in a stop loss order than may seldom be needed but is a must, because of those occasional times when price can move fast and far and really hurt you. Such an order will be a market order, which means you will be filled at the first available price after the price hits your order. You may or may not be filled at your stop loss price in a fast moving market, but you will be out of your trade at some close price.
I get lazy sometimes and fail to do it, I will admit, and I pay for my laziness from time to time. Be safe. Get in the good habit of putting in a stop loss on every trade.
I had this terrible disease, so I can understand how hard it is to fight this tendency. When I was seeking a way to win in the market, I would learn of a new technique and be so excited that I would come home and immediately start trading heavily with real money in live trading action. Unfortunately for me, I was making a lot of money in my business, so losses were not a worry of mine. I just wrote them off flippantly as the cost of learning. That was bad erroneous thinking on my part.
Instead of taking it slow and checking out the method on a demo to really prove its legitimacy, I was to eager, too anxious, and too impatient to do what I now know would have been the smart course of action. I should have checked it out on a demo account first. But I did not do that. I was so confident, so anxious, and so excited that I would check it would with real money trading. I just wish I had all the money I have lost to learn what I am trying to teach you here. This advice may save you many multiples of the low cost of my training course.
Check everything you are told out on a demo account. Check out what I teach you on a demo account. Prove to yourself that what I am teaching you works, or what anyone else is telling you work. Don’t blindly take my word for it or anyone else’s. That is exactly why I recommend to each students homework study and research. I send every student back into the charts to check out what I have been teaching. If when you are search back through the charts that the signals I am teaching you do make money and win they you will gian confidence in me as your teacher and in the value of the signals I am teaching you.
Some doubting Thomas’s may still be doubters and say that it is harder to see the signals in real time because the candles are changing all the time. That is true. The candles are changing all the time, but the candles we are viewing are not. Our signal candle is fixed, done, finished, and cast in stone. The entry candle is not finished, but we wait until it has confirmed the trade and that fact can not be undone. There will always be a record, proof so to speak, that the trade did confirm and trigger. It can not be erased. It is a record on the tape and can not be erased. Might the trade reverse and cause a loss. Of course, and there will be a record of that as well. We are not trying to fool or trick or deceive anyone. The record of the signals are there for all the world to see forever. They can not be changed.
Check it out with play money but treat that play money like it was real money. Here is the truth no one wants to hear and few will honestly tell you.
IF YOU CAN’T MAKE CONSISTENT MONEY TRADING A DEMO ACCOUNT, YOU ARE TRICKING YOURSELF TO THINK YOU WILL DO BETTER IN A LIVE MONEY ACCOUNT
IF YOU HAVE FOUND SOMETHING THAT IS REALLY GOOD, THEN IT WILL STAND THE TEST OF TIME FOR YOU TO CHECK IT OUT ON A DEMO ACCOUNT. IF IT DOESN’T MAKE YOU MONEY IN A DEMO ACCOUNT, IT CERTAINLY WON’T WHEN YOU ARE UNDER THE FEAR AND PRESSURE OF LOSING REAL MONEY IN LIVE TIME.
We are so fortunate these days to be able to “test drive” any new idea or trading signal in demo time rather than live real money time. I wish we could do this in all of life. Test out a car before we buy it. Test out a job before we find out we hate the job or the boss. Test out a vacuum sweeper before we find its power is not sufficient to really clean our carpet. There are so many situations in life where a trial or pre test would be so great.
We buy insurance policies and hold them for years only too often to find that the company was not solid, or the fine print excludes our payment, or that it pays far less than we thought because of exclusions and trickery with the calculations.
Maybe it would be good to even have a “trail marriage” to see if two people are really compatible. Boy, I’ll bet that idea meets some resistance. But stop and think about all the children of divorced couples who found after they had children that they just were not compatible and able to live together? Do two people really know each other well enough when they get married to know that the relationship will work for the 25 years it takes to raise the children?
Well we as traders can know. We can use a demo account and know without any doubt that what we are trading works. If a signal is good, or a trading technique works, then it will work in a demo account.
There is no trickery with a demo account. You might buy computer games for blackjack or slot machines that let you win and win all the time. Those are games. The demo platforms at the Brokerages are using live data, exactly the same data you will be trading with later with real money.
Monument Investment Group, (Lamar’s) GUARANTEE: IF YOU CANNOT MAKE CONSISTENT PROFITS WITH A DEMO ACCOUNT, I CAN ALMOST CERTAINLY GUARANTEE YOU WILL LOSE WITH A LIVE TRADING ACCOUNT.