Be a Trader, Not a Gambler
I meet quite a few people at my seminars and sometimes I find someone has started trading but it brought out the gambler in them.
The moment they start instead of going slowly and sensibly they find themselves overdoing it right away. They begin to play currencies, indices, commodities and fast moving markets and before they know it, they have lost a bundle. And what’s worse they want to gamble it back! Which often makes things even worse.
A good example is Adam, who came to a recent event of mine, and this is his story which he is happy to share:
“I have managed to lose roughly £20,000 in the course of a few days. How did I achieve this impressive feat? Well, quite simply I went over one of the “tipping points” you talk about in your book.
When you said to beware of trading the indices, I decided I knew better, and the string of winning trades on the FTSE I enjoyed over the next three months only convinced me further that I possessed a rare talent.
A week or two ago, I saw that the DOW was nearing record highs, so took out a short on it, a few days later it had risen higher and I took out another (trying to catch a rising knife as it were).
Then on Wednesday night it started to shoot up explosively. At this point I lost all contact with sanity and started to take out short after short, convinced that a correction MUST be on the way, and dreaming of how I was going spend the vast windfall that would soon pour into my pockets.
I woke up this morning, to find out that all my positions had been “margin called” overnight as the DOW futures continued to rise, and all my short bets had been closed out, with huge losses. Taking with them not only my profits but also most of my starting capital.
Yes, it is money I can (just about) afford to lose, but my goodness it hurts! And it’s left me with only the dregs of my original spread-betting capital to try to re-build with. It appears my dream of never working again may have been somewhat premature.
The saddest thing about this is that I have read/listened to your book a dozen times now, and thought I had absorbed its lessons. I guess you only learn the hard way in this life.”
Now Adam COULD pick things up from here and start again. Slowly. Trading slower markets. Learning how to have a trading plan with each trade.
But, possibly, he may have found out there is an addicted gambler in his make up and that if history repeats itself, he should consider he is a gambler at heart and so should consider not trading at all.
What he did, and what the traders programme on BBC 2 last week showed, is trading can turn people into gamblers – and nearly all gamblers lose. I think he can turn it around – the main thing is not to chase the money he already lost too hard.
So if you are about to start trading, do it slowly. Don’t put on giant bets for the sake of it and hope for the best. Put on small trades, learn... it takes time, a long time to get it right.
If you feel excited when trading, as if you are putting money on a horse, something is wrong. Each trade must be carefully thought out. Especially a decision to exit fast if a trade goes wrong.
Start very small with low expectations and gradually move stakes up only when you are ready.
Never ever end up in the same situation as Adam.
Hopefully my new book Naked Trader 4 will give you plenty of pointers, available from my site nakedtrader.co.uk or Amazon.