Trading: No Room For Gamblers

 By:  Ivan Cavric

Many novice traders have gambling mentalities which they have acquired from other pursuits such as horse racing. They mistakenly believe that they can transfer their winning strategies from those activities easily across to trading. Some even think that trading should be easier because it does not comprise uncertainties such as a horse breaking its leg or falling ill.

        

If you identify with this mindset then you must get rid of it as quickly as possible otherwise you will suffer severe financial losses trading. This is because although trading may appear to be a simple two-way bet from initial perceptions, it is in fact a very complex entity. You can gain an understanding of this feature if you realize that the financial markets have an astonishing daily turnover. The question you need to ask is what on this planet is capable of generating such a massive amount of money.

The answer is the combined trading actions performed by a staggering number of market participants. In addition, some of them are very large organizations such as governments and business institutions who can have considerable budgets at their disposal. Such enterprises also have their own agendas and can generate serious price movements just on their own without any warning to the rest of the market.

You must also realize that as various markets can produce high levels of volatility they are also capable of producing the most complex of price movements and patterns. Even experts using the most advanced technical indicators have difficulty deciphering them.

In addition, you can quite rightly deduce that a gambling mentality does not bode well for traders by verifying the fact that 95% of all novices lose their initial equity within a few months from startup. This is very strong evidence that such an approach is doomed to failure.

So what can you do and is trading worthwhile? Yes it is if you are prepared to make a few simple but important shifts in your mindset. For instance, you need to adopt a professional approach so that you only enter trades which exhibit high profitability but with minimum risk exposure to your own equity.

You can achieve this objective by designing or acquiring a well-tested trading strategy that will consist of a firm set of rules that you can operate in a consistent fashion. By doing so, you will then restrict yourself from mindlessly chasing poor quality positions. Instead, your strategy will alert you only when the optimum conditions are present for new trading opportunities.

Finally perfect your strategy by progressing it through a series of small steps of incremental risk. If you re-evaluate its performance after each update you make you can then optimize its performance in order to maximize your profits at minimum risk. Yes, such a process will take you some time to master but this way forward must be better and more scientific than just throwing your money at a subject as complex as the market. After all, most novices do just that and look at the mess they eventually find themselves in.

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