Today we are going to talk about a topic many traders will deny and it’s important for you to keep on reading, especially if you feel offended or think that this article isn’t about you. This article has the goal to raise awareness of negative behavioral and thought patterns. The concepts highlighted can help you identify patterns that might be holding you back from achieving success in trading.
Many people who call themselves “traders” are operating in a gambling mindset. In the following article we condensed research findings of what defines a gambler and what it means to act in a gambling mindset.
The 4 types of gamblers
Psychology and psychological research distinguish between 4 different types of gamblers:
1) Social gambling occurs when you occasionally meet friends for a limited amount of time. Often, the gambling aspect is not as important as the social component and the bet sizes are limited.
2) In professional gambling, the gamblers limit their bets and discipline plays a very important role.
3) Problem gambling is characterized by pre-occupation (the activity takes up a lot of time), other interests become unimportant, people continue to gamble despite negative experiences, accompanied by a variety of other factors as we will see shortly.
4) Pathological gamblers deny their circumstances, they are over-confident and believe that they are in control; they believe that money will solve all their problems; they are very competitive, restless and get bored easily. Pathological gamblers are often workaholics or binge workers.
The definitions have been borrowed from Psychcentral.com. In the following article, we will focus on the problem and pathological gamblers and highlight the difference between social and professional gambling.
Gambling refers to engaging in an activity where the outcome is uncertain and where the protagonist is betting money on specific outcomes.
The problem-gambler checklist
Gamblers get excited by risking (substantial amounts of) money. Money is not as important anymore, but they are after the excitement and the thrill.1
Gamblers steadily increase the amount they are willing to risk. 1
Gambling and the gambling activity take up a lot of time and become an important role in the life of a gambler (gambling instead of spending time with family, friends and hobbies). 1
Casual-gamblers often set a loss limit that signals to stop playing. Problem-gamblers do not stop when they lose money, but they try to recover their losses. 1
Problem-gamblers increase the bet size to recover from losses faster. A behavior called “chasing”. 2
Bragging about wins, but not talking about losses. 2
Experience mood swings – problem-gamblers feel good when winning and down when losing. 2
Lying or secretive behavior to cover up their gambling and the amount of their gambling. 2
Gambling with money they can’t afford to lose. 3
People have problems focusing on anything else, but gambling. 3
Denying that they are problem or pathologic-gamblers. 3
It becomes obvious very fast why problem-gamblers should stay away from taking risks or work on their mental game – preferably by consulting professional help. If you find yourself among the descriptions above, we urge you to take a break from trading and re-think what you are doing.
Traits of a professional gambler/trader/ risk-taker
There are a few character traits and mindset-qualities that stand out for the professional gambler 3:
The act of gambling and when to bet money is planned and based on methodical principles
A high level of discipline and the absence of impulsive decision-making
Does not chase losses
Professional gamblers can evolve into problem or pathological gamblers
Further reading: In an earlier article we talked about the broker and other related research findings which observed the trading behavior of different segments of traders. The researchers identified the traders who are most likely to lose all their money and also uncovered some of the reasons behind acting within a gambling mindset.