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#1 11-05-2014 13:35:24

johnedward
Admin & Trader
From: Paris - France
Registered: 21-12-2009
Posts: 2561
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Professional forex traders vs gamblers

Professional forex traders vs gamblers

 

http://www.forex-central.net/forum/userimages/trader-pro-vs-player.JPG


This article will open your eyes and help you figure out if you are a trader or a gambler. You should read it, even if you do not have problems "playing" on the financial markets, because it might give you some useful tips to improve your trading performance.

Gamblers often fund their account with a small amount, €500 for example, then they lose the money before funding the account with the same amount. They repeat this process again and again without changing their routine, their mindset or strategy; they do the same thing every week hoping to make money. I think it is Einstein who said "doing the same thing over and over again and expecting different results is the definition of insanity."

A real trader must follow strict rules, just like a business owner who manages risks to ensure the sustainability of his business. He must be realistic and constantly question himself in order to adapt his strategies to market conditions and personal circumstances.

The difference between a trading pro and a gambler

You may think that trading is a battle against other players in the market, but in reality the enemy is yourself. A human being in this trading environment without limits will sooner or later be tempted to play with his money, so he must devise a plan to resist this temptation. Many traders think they are trading when in reality they are behaving just like someone who has a gambling problem.

It is so easy to fall into a cycle of gambling without really realising it... Here are some of the basic features of gamblers and pro traders.

Basic traits of a gambler in the forex exchange:

• Has no effective trading strategy
• Does not have a trading plan
• Does not log trading
• Does not pay attention to risk management
• Is focused on profits
• Is often prone to intense emotional ups and downs 
• Often holds onto trades in the blind hope that they will become profitable despite unrealised losses 
• Trades much more often than he should

Basic traits of a professional forex trader:

• Masters an effective trading strategy 
• Uses a forex trading plan
• Has a trading journal and uses it
• Focuses on risk management on each trade
• Not too focused on profits and bonuses
• Trades only when an opportunity arises
• Does not become emotional after a profit or loss
• Considers trading to be a business

If two or more characteristics of gamblers we have listed above apply to you, you should take action. A trader can break the cycle of gambling if he agrees to change his ways and follow a predefined plan of action as a pro trader.

Solutions for the trader player

There is nothing wrong with admitting that you gamble on the markets, many pro traders had the same problem at the beginning of their careers. Let's have a look at some of the most important things you can start doing today to act like a real trader.

Checklist for the gambling trader:

• The first thing is to stop trading with real money. You'll have to take a break from real trading to stop your emotions.
• Second, make sure that you: a) have a trading strategy that offers an acceptable level of long-term success and B) understand how to use this strategy on a demo account.
• Create a checklist every day or a forex trading plan. This should essentially be your daily routine, write down all your transactions, this way you will be much less likely to make random trades. This will help you treat your trading like a business and not like fun in a casino.
• You must have a risk management plan and actually use it, you must accept the fact that losing trades are inevitable and it only takes one bad transaction to lose all your money. In other words, your trading advantage is randomly distributed across a series of trades, you must never be sure of the outcome of a trade and always plan for the worst.
• Begin to track all your transactions in a journal, without exception... a true entrepreneur monitors all operations with journals or records.
• Limit your time on the market by fixing a maximum of one trade per day. This will give you a strict rule to follow to improve your discipline by following a daily routine.
• Have confidence in your trading strategy in the long term without trying to recover losses in the short term by increasing risk, and don't trade to obtain revenge after a bad trade or a series of losing trades.
• Always be aware of your state of mind to control your emotions. If you get the urge to trade without reason or risk more than usual, stop trading for the day.

Pitfalls to avoid

A few winning trades often mislead amateur traders because they become too confident. This usually results in an increase in risk-taking and a loss greater than previous earnings. This is typical behavior of gambling traders who always ended up with substantial losses. Humans are prey to randomly distributed rewards. Luckily a few winning trades can make us feel the illusion of a certain trading capacity and thus bias our paradigms. Scientific studies show that we are conditioned to repeat self-destructive behaviour when enticed by the lure of a great reward that is randomly distributed. This is the principle of the lottery or casinos, in which players hope to hit the jackpot and then spend hours spending money to try to win again.

You must recognise this "gaming" behaviour and try to break it. Fortunately, we have a highly developed brain that can plan for the long term. This is our main tool for defense against our primitive brain areas that tend to naturally dominate most of our actions on the markets and try to get us to gamble.

A professional trader constantly thinks about risk management. He is disciplined and follows a strict routine, because he considers trading to be a business. A professional trader is not fazed by a winning trade or even a series of winning trades trade; he remains emotionally neutral no matter the outcome of the trade. Professional traders are more emotionally excited about their ability to stick to their trading plan and preserve their capital.


"Anything worth having is worth going for - all the way." - J.R. Ewing

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