Gambler’s Conceit

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Gambler’s Conceit

Article written by http://www.forextraders.com

It is the bane of the gambler, and the trader: the feeling that you can risk as much as you want as long as you are the winner, because, as soon as you stop being the winner you will get out of the game is familiar to most people who have had some relationship with risk in their lifes. It is a sweet misconception, a wrong sense of powerfulness that promises to grant us the sixth sense that will let us know when exactly our luck has turned, and when we should end the game to rest on our laurels. If only it were that easy, after all, there would be little pride in being a great trader. By getting into a position at any moment, and then getting out at the most oppurtune time we would have little trouble in attaining profitability in a short while. Sadly, this feeling of powerfulness is a dangerous mistake of perception that has been examined by professionals for such a long time that it even has a specific name to it. It is called the gambler`s conceit.

Gambler`s conceit is quite simply the distorted conception of a trader about the sustainability of his winning streaks. The more he wins, the stronger his attachment to the belief that his achievements are a consequence of his wisdom, luck, unique trading style, or his ability to beat the market. Rationalizing these supernatural conceptions paves a pseudo-scientific way to doom.

It is the little tweaks, the small changes that were made to the last trade that have finally given the trader the perfect indicator, strategy, or vision which will make far-sighted trading choices so much of a possibility that he will be able to exploit his chances to the maximum before spotting the precise occasion in which he must exit. Few experienced traders would succumb to such reasoning on the basis of luck or chance factors alone, but when those luck or chance factors are tied to seemingly rational explanations, there are few brilliant minds that will not, at some point, be overtaken by the gambler`s conceit.

Gambler`s conceit, in its extreme form, is ruinous. The trader will keep trading with the same approach long after it is proven that the strategy is far from being perfect, that it is prone to creating mistakes, but because of the faulty sense of confidence, he will keep taking risks hoping to improve results at first, and then to cover losses, with the end invariably being manifested in an empty account. The attachment to one`s perception of luck is almost always disadvantageous to traders, since luck, by defintion, is a random factor that is independent of the time of the day, the mental state of the person, or his trading plan. Yet by interpreting trade results to imply a special role for one`s luck and chance, the trader falls victim to the belief that he is special, only to discover later that it is only his exceptional mistake that make him a special member of the community, with exaggerated losses as proof of his stature.

So what can we do to overcome the gambler`s conceit? Is it difficult to defeat this dangerous illusion about our talents and skills? Not really, it is as easy to avoid becoming a victim of this affliction as it is to suffer from it. All that you need to do is to stick to a distinct, well-defined trading plan which will be implemented with discipline. Commit yourself to an absolute ceiling to every initial position; determine your profit target for each trade, and realize your gains when you feel uncomfortable about maintaining it. Most importantly, always make sure that you have stop-loss orders in place, and never move them around in expectation that the trade will be fine just soon. That, after all, is the definition of gambler`s conceit. Just one more trade, just one more chance, and everything will be fine. Yet this never works in trading, since success is as dependent on discipline, and clarity, and perhaps even more, as it is dependent on analytical talent, and basic knowledge.

By Forex Traders