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.