From Gambler to Trader: Breaking Free from the Casino Mentality in Trading

By | July 4, 2023 3:39 pm

Any quick drive through Goa Casino makes it pretty clear who is making in the money –the Casinos!

Why do gamblers keep going back despite losing most of the time?

  • Big hope of making good money in extreme short term.
  • No Plan, Not understanding probabilities
  • Not knowing when to Stop gambling
  • Gambling based on Gut feel or emotions

These symptoms may sound familiar to loss making traders who have lost money in the stock market.
In gambling there are really only two sides to choose to be on, either you are a gambler or you are the house. The gamblers have the long term odds stacked against them. The more they gamble, the more the odds are that they will inevitably lose. The casino has stacked the odds on their side over the  long haul. The more the gambler keeps gambling, the more the odds shift in favor of the casino operator. The more they gamble the greater the chance the gambler will leave empty-handed.
Profitable traders operate like casinos, with the odds in their favor over the long term. They have learned to trade with historically, back-tested trading systems that put the odds on their side. Much like casino operators, they have strong risk and money management, and they make sure few trades cannot break or make their account.

Most retails traders behave like gamblers, with no real KNACK in the market . They trade high risk bet,mostly via options, think they will make big but eventually lose it all. Many times these traders hurt themselves even worse by buying into the market in a downtrend and shorting into a rally,  believing that they can pick the bottom or top.

New traders often have no concept of risk management and like gamblers they eventual give back all their winnings and then some. Casinos set table limits so as not to expose themselves to the risk of ruin by allowing a gambler to hurt the casino’s bottom line on any one huge bet.On the similar way every trader should have a loss making limit, once hit should stop trading.

Traders must have the discipline to stick with positive expectancy models and risk management. Casinos do not get upset and change their rules trying to win back money from a gambler who goes on a lucky streak, as they know luck eventually runs out. Traders should never go off their trading plan to try to win back money quickly that they lost . Luck is what gamblers hope for while good traders are trading for a positive expectancy. Successful traders and casino operators consistently play the probabilities and manage risk so should you if you want to win.

Trade the market – not the money involved in your account. Each trade must be based on a proven trading system of entries and exits and not by how much we hope to make. Never let failed trades in the past force you to revenge trade and and do not anticipate a signal. Let the market come to you and take it only when it is hit, utilizing rigid discipline.

Winning traders always stick with their historically proven trading system. Casinos do not close down if gamblers get on a winning streak because they have calculated the odds and play based on those odds.  If we can’t beat them, let’s join them, be the casino not the gambler.

Avoiding Impulsive Trading

Here is a sequence I observe among many  losing traders

Trading Day begins with uncertainty. The trader isn’t having any trading plan, Just saw global cues but not  sure which way the market is going, but feels the need to make a trade. Instead of sitting back , making a plan and let the level to come to initiate a trade , the trader is leaning forward, felling impulsive to take a trade.

The market moves higher and trader feel he is left out in this current move, and the urge to enter is so overwhelming followed by frustration of missing a great move.  The trader now expresses frustration, “I should have bought there.”

The market comes down, then up.Consolidating the gains of the recent move. Suddenly the market move up one more time and the trader can’t take it any more and jump into the market without confirming. He is doing urge surfing, trading based on urge not on his trading system.

There is no profit target or stop loss articulated. This is not a trade designed with good risk/reward parameters, because there *are* no parameters. This is a trade basically an impulsive trade taken “TO BE IN MARKET”

The market suddenly reverses and retraces its recent gains. Now the trader either has to get out with a loss or hang in there and hope for a reversal. His frustration builds, leading him to continue his over trading, and making it more likely that he will stick with–and even add to–losing trades.

Most of retail  trader, trades not to make money but more to satisfy EGO and EMOTIONS. Once he becomes attached to the need to trade and make money–most of traders will only look t find top and bottom of the market, They are not much bothered about the move but more intrested in catching the top and bottom of market, When they miss it they try to satisfy their ego by giving 100 of excuses and finally when the margin call trigger need to exit the market. And the cycle keep repeating again and again.

How to get Rid of these bad trading habits

  1. Develop a trading strategy
  2. Develop your trading rules
  3. Practices them again and again till they are itched in your subconscious mind
  4. Mentally rehearsing trade again and again.
  5. taking a break during the trading day after Loss
  6. Trading in your comfort zone
  7. More you know about yourself better trader you will become.

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