Gambling is a bad word and a bad thing for most people. Strangely enough at September 2014, it was estimated that “70 per cent of UK adults, more than 32 million people, play the lottery on a regular basis.” This means that 70% of the UK population are gamblers. The percentage of people taking chances on the Lottery have varied from 32% to 70% in 20 years.
So what is gambling? Some say investing in stocks is gambling. Others say spreadbetting is definitely gambling. What makes a ‘thing’ gambling? According to European Law and I’m paraphrasing, any set up for betting where the house has a significant advantage is gambling. So that means if you’ve bought shares in Amazon, you’re not gambling (as that’s not spreadbetting) – but if you bought the equivalent leveraged value on a spreadbetting platform that’s gambling (by legal definition).
Compare with investing in stocks/shares: anybody who puts a sum of money on say Amazon, will suffer numerous losses of equity on those shares (whilst gaining some dividends), over say 2 years. How? Price moves up and down. In the up phases there is gain of equity. In the down phases and troughs share price plummets and may go below original purchase price (negative equity). But people hold on to those sorts of powerful shares and over say 5 years, they come out in an advantageous position. Are they gambling? Not officially or legally. However, once a person enters a leveraged system and it’s called spreadbetting they’re immediately involved in gambling even if they take the same equivalent position size that they would have on a ‘stock market’. The latter is about the law.
This is not a dissertation on the pros and cons of gambling or about gambling addiction. I’m leaving off legalities and getting into logic. The following is a logic diagram about the key determinants of gambling. The key determining issues for traders are ‘luck’ and control.
New and inexperienced traders may believe that they are in control when they are actually not. They tend to discover by a painful process of repeated losses that they have been plagued by largely unconscious psychological and cognitive biases. Many a new trader will have to stop trading for a number of obvious reasons. Some who can persist, and discover what’s going wrong may gain mastery over those unconscious issues. Sometimes the issues are not unconscious at all.
Expert traders – after many years of gaining self-discipline – become very calculating, mathematical and ’emotionless’ about trading. This is the so-called ‘fearless state‘. Whatever system or method they use, they don’t care about the gains and losses as much as a novice trader. This detachment and discipline seems essential for profitability. There are numerous real-life stories of how successful (profitable) traders have endured tremendous losses in the early years.
The markets and brokers win over traders by relying on their lack of psychological control. So, to reverse the balance one has to lose the ‘psychological’ and have a sound system, work it mechanically – yet maintain vigilance for changes in the nature of markets. It sounds simple but it’s not easy!
It appears that the pain of losses reshapes cognition and psychological processes. What does that mean? Does it mean that every successful profitable trader has to lose money in order to become profitable? It’s difficult to say ‘every’ – because there is no statistical research done on this, to give percentages and profitability ratings etc. What is probably the situation, is that most currently profitable traders will have lost much money before becoming profitable (after many years of ‘torture’).
There has been much investigation into what ‘expert gamblers’ do. The reality is that they are taking chances but they’re not really gambling in the way that your average gambler does.
So what’s next? Nothing. You do as you wish. You change or you don’t. For sure the markets won’t change just for you.