Are you a loser?....Trading Psychology

[Julia]

I saw the movie "two for the money" tonight. There was a scene where they went to a gamblers anonymous meeting and Pacino talked about how they were addicted not to the gambling, but the losing part. He said that subconsciously, they allow themselves to lose because it creates a rush. "you never feel more alive than that moment after you realise you lost"

This got me thinking. I wrote a paper on trading psychology and here is a relevant quote:

"Gambling is an addiction, caused by a mental illness. It is not a chemical dependency issue like drugs, smoking or alcohol, but rather one we can control if we so desire.


If you believe addiction to gambling is caused by a mental illness, why wouldn't addiction to drugs, smoking or alcohol be similarly caused, and then overlaid bythe physiological dependence on the actual substance of addiction?

Similar to chemical addictions, certain parts of the brain are stimulated when we gamble. When we win, we begin to think of the happiness that lies ahead. These positive thoughts release dopamine in the brain and adrenaline in the body, giving us a ‘buzz’. Our heart rate, blood pressure and breathing increase. The dopamine in the brain stimulates the regions that control mood and motivation. We feel very happy and very alive. When we lose, only adrenaline is released. Since we lack the dopamine effect in the brain, but still have the increased heart rate, blood pressure and breathing, this enhances a feeling of fear. It is a primitive instinct, common during a fight for survival. Think fast, react fast, and survive. The increased heart rate, blood pressure and breathing cause a large amount of oxygen to accelerate the normal brain activity, forcing the decision making process to be sped up.

Yes, or alternatively the sense of panic induced by the surge of adrenaline can result in total confusion where any capacity to make decisions is removed.

Neurons do not have time to ‘consult’ parts of the brain controlling logic and reason, and bypass them. This is the early stage of panic. Placed bets during this stage are seldom logical or rational, and a self-destructive cycle emerges."

I now feel that assessment may be incomplete. It seems there are two types of addicted gamblers. The first gets a rush from winning. The second gets a rush from losing. As stated, the chemical changes are different. But is it possible that some people actually subconsciously crave a loss?

This is an interesting suggestion. However, I find it difficult to align the pleasurable "rush" which you quite reasonably suggest involves the release of dopamine, with the ghastly sinking feeling which comes from fear, whatever its source.

Why would anyone, consciously or subconsciously, crave a loss?

It is of course reasonable to assume that the gambler addicted to winning is driven by a positive, unacheiveable, unsustainable goal. He is a dopamine addict. He craves the adrenaline rush and associated vital signs, repeat:

"When we win, we begin to think of the happiness that lies ahead. These positive thoughts release dopamine in the brain and adrenaline in the body, giving us a ‘buzz’. Our heart rate, blood pressure and breathing increase. The dopamine in the brain stimulates the regions that control mood and motivation. We feel very happy and very alive."

Now compare this to a gambler addicted to losing. He is addicted to epinephrine (adrenaline). His drive comes from a subconscious need to feel something......anything. Dopamine is not his drug of choice. Perhaps he has become immune to it. repeat:

"When we lose, only adrenaline is released. Since we lack the dopamine effect in the brain, but still have the increased heart rate, blood pressure and breathing, this enhances a feeling of fear. Think fast, react fast, and survive. The increased heart rate, blood pressure and breathing cause a large amount of oxygen to accelerate the normal brain activity...."

Having been a gambler myself in the past, I have first hand experience. When I took a loss, my heart rate skyrocketed. I felt very overheated and my brow sweated. I was thinking 2x as fast as when I took a loss. I felt great discomfort and my life kind of flashed before my eyes. I shifted in my seat a lot.

Did I feel alive? Very much so.
Did it feel good? No way.
Do I think I subconsciously crave a loss? stupid question. My conscious brain cant answer that.

No, To draw the conclusion that, because you feel an adrenaline-activated sense of fear on losing means you therefore are addicted to losing sounds like faulty logic to me. Why can't it be as simple as the gambler persisting with losses simply in the eternal hope that the wins will outweigh the losses?

Do I think I am a dopamine addict or an epinephrine addict? I dont know. Im not sure theres any way to tell. Maybe if I was playing blackjack and I hit on a 20, that might be a sign.
Was I wrong? Is gambling a chemical dependancy afterall? Can it really be controlled without corrective drugs? Or do we just learn to cope and suffer in silence?

There have been some studies which have shown that anti-depressant medication has some effect in controlling various kinds of addictive behaviour. My own experience of people with addictive disorders has been that they are often people who continually push the boundaries in most aspects of their lives. Ordinary experiences just seem to be too dull for them, so they seek the extraordinary, via excessive gambling, experimentation with drugs, etc. I'm not necessarily suggesting this applies to you, Moneytree. It's just what I've noticed in people I've known.

So what does all this teach me?

It teaches me that I must remove emotion from trading completely. Learn not to celebrate a win, nor moarn a loss. Make entries and exits based on logic, not gut feel. Emotion is my enemy. Understand that adrenaline dissolves logic, leading to failure. Enter a trade only when there is a justifiable reason other than "Im bored" or "I need $$$". Set stops immediately and walk away. When in profit, dont sell unless you get a sell signal.
For every $1 in paper profit, there are $2 in feared losses. This means, if you are up $1000, you primary fear is that this $1000 will fall to zero, when the odds are equal that this will increase to $2000. But we will exit a trade early, because the safe $1000 means more to us than the possible $2000. Trailing stops are ideal for this irrational problem.

There will be many people reading this who dont want to accept they have a gambling problem. Perhaps a few will realise they fit the definition of a "loser", and take steps to avoid failure.

And if there were, would they have the courage to admit it as I have? or are we all super-traders living in the Caymans?

Thank you for a thought-provoking and self disclosing post, Moneytree. It's a really interesting topic.

Julia

 

[happytrader]

Here are some interesting and possibly useful tips.

The body does not lie.

The body also has a memory.

The need for safety is right up there with food, water and shelter.

Too much stress kills brain cells

Too much stress narrows focus

Emotion and logic don't meet

If you want to change a behaviour change the emotional state.

If you have ever felt powerless, ask yourself, where have I ever felt this feeling before?

That gut feeling is likely to be the fight or flight response kicking in as it gets ready to purge itself to conserve energy to respond. Its a protective response.

All useful stuff to a trader.

Cheers
Happytrader

 

[chemist]

...
So what does all this teach me?

It teaches me that I must remove emotion from trading completely. Learn not to celebrate a win, nor moarn a loss. Make entries and exits based on logic, not gut feel. Emotion is my enemy. Understand that adrenaline dissolves logic, leading to failure. Enter a trade only when there is a justifiable reason other than "Im bored" or "I need $$$". Set stops immediately and walk away. When in profit, dont sell unless you get a sell signal. ...

Get a bot.

cheers,
Chemist

 

[tech/a]

Get a bot.

cheers,
Chemist

?????

Simply if its business its unemotional.

 

[Happy Profits!]

Sigh, still trying to detach emotions from my decisions

Hi money tree, please don't let a few knocks deter you from posting ...at least I myself don't intend to!

I've been 'lurking' in these forums for about 2 weeks now and your thread and the, er, first response was what finally prompted me to drag me lazy a$$* to register on the forum as a show of support to (constructive) posters. Yes, this is my first post...car'n, somebody, welcome me!

Anyway, back onto relevance: I'm here because it is my firm belief that each trader's/investor's own psychology is what ultimately determines their success or failure in obtaining AND keeping profits (as it is in life, of course). With the proviso of course, that IQ is at least above double digits.

As for me, I've just recently blown a sizeable amount (to me) at the local casino...that's why I can relate so well to the quote below:

....Having been a gambler myself in the past, I have first hand experience. When I took a loss, my heart rate skyrocketed. I felt very overheated and my brow sweated. I was thinking 2x as fast as when I took a loss. I felt great discomfort and my life kind of flashed before my eyes. I shifted in my seat a lot.

Did I feel alive? Very much so.
Did it feel good? No way.
Do I think I subconsciously crave a loss? stupid question. My conscious brain cant answer that.
Do I think I am a dopamine addict or an epinephrine addict? I dont know. Im not sure theres any way to tell. Maybe if I was playing blackjack and I hit on a 20, that might be a sign...

LOL, especially with BlackJack being my game of choice as well, I felt my heart palpitating even as I read the first part! Yup, very unpleasant feeling as you see that Basic Strategy isn't working and the (stupid) concept of doubling up to recoup loss(es) is rapidly bleeding you dry (curse you, Martindale..ale..ale...ale).

The thing is, I do lean towards Julia's post above ie. that one is not so much addicted to losing as to the eternal hope of winning. Hmm....semantics, I suppose, and certainly nothing that could be solved in a forum. Taking my own experience as an example, I've always certainly maintained that I've wished that from that first moment I put the chips on the box, that I would have lost every single round. Maybe it would have stopped me, maybe it wouldn't have. I'll never know.

However, what happened was that from a $200 stake, I walked out of the casino three hours later $6978 up (I'm sure other gamblers remember their first ever substantial win, hence the factual dollar amount). Nothing but greed, audacious betting AND pure dumb luck. For the next few months, kept on winning and winning until at point, got up to around $25,000 in winnings (all from that one $200 stake). And then...yup, the doo-doo hit the fan...JUST kept losing and losing and losing until I'm now $26,000 in the red. $41,000 if you count the winnings :, which of course, us gamblers are wont to do just as we (foolishly) declare "Oh, it's not a loss, it's only a loan!".

Anyway, from that long-winded rant: my point is that IMHO, I think for almost every person/gambler that seems addicted to losing, there MUST have been a crucial win to have set off the chain of compulsive behaviour. That, is, to myself, I was not addicted to losing (I certainly don't enjoy the feeling) but was trying to recapture the long-gone win. However, to the croupiers who saw me every weekend, they must have thought, "Wow! This guy's a glutton for punishment. He must really be addicted to losing!" So, both you and Julia are right.

Which brings me (clunkily) to trader psychology; IMHO, newbies (such as me) should be directed to the battlefield inside the mind before they ever even think of tackling the market. I've read most books I can get my hands on and sadly, most espouse indicators, PERs, Moving Averages etc. as the most important things to look out for but very few actually point out the emotional aspects of trading/investing.

Phew, a thank you and apology to those of you who made it thru this ramble. Unfortunately, I'll probably be back in these forums to harass people for advice (not financial ) & read the (mostly) informative and thought-provoking posts. Until next time, I wish you all the greatest health and happiness as your profits roll in and compound!

PS. Do any of you apply techniques such as CBT (Cognitive Behaviour Therapy) or NLP (Neuro-Linguistic Programming) to your everyday life and trading?

* Oops! Edited 'cos I didn't know you couldn't write ****

 

[RichKid]

Re: Sigh, still trying to detach emotions from my decisions

..........

I've been 'lurking' in these forums for about 2 weeks now and your thread and the, er, first response was what finally prompted me to drag me lazy a$$* to register on the forum as a show of support to (constructive) posters. Yes, this is my first post...car'n, somebody, welcome me! ........

Welcome to ASF Happy Profits!
Make yourself at home, looking forward to your posts, keep em coming...try Trading in the Zone by Douglas and Van Tharp's Trade your way to financial freedom or try to find a psychologist who has experience counselling traders.

All the best,
RichKid
moderator

 

[Happy Profits!]

Hi RichKid, thanks for the warm welcome ! Sorry to have taken you away from analysing more trades !

Will do with the suggestions...oo-er, Seykota, Turtles, Wilson (Leon) et al. too much info, too little brain cells.

Go on, scoot, get back to your spreadsheets!

 

[Julia]

Hello Happy Profits,

Welcome, and thanks indeed for a really interesting post - not ramblings at all.

After I'd posted I continued to think about the whole question of how addictive behaviour starts, and I realised I've often seen it associated with other risk taking behaviours, i.e. driving very fast cars too fast. Something to do with the craved stimulus of "living with that element of danger", always being on the edge. Ordinariness without the repeated surge of adrenaline, whether combined with the pleasurable endorphins, or just alone as fear, or at times even terror, just doesn't cut it for many of these personalities.

I don't know how much of this behaviour is genetic but it does seem to be self reinforcing unless successful intervention is obtained in the people I've known with these problems.

I don't know much about NLP but have seen some quite good results from cognitive behaviour therapy.

Sounds as though the share market might be a good place to avoid until some of the emotional stuff is controlled?

All the best and thanks for your interesting comments.

Julia

 

[money tree]

hi happy profits

thanks for your input/honesty.

I have a similar gambling story (I suppose we all do)

I developed a "system" for roulette.....which was fairly ingenious....but never foolproof. I would wait until a "dozen" failed to be hit 18x (you could tell just walking around by the LED screens). I then began betting on that dozen, using reversion to the mean and a variation of martingale for betting.....basicly it worked flawlessly for a while.

The first night I walked in with $400 and got up to $9400 by staying there 26 hours......you guessed it, didnt want to go home until I had $10k.

No prizes for guessing what happened next......

the 3rd dozen didnt come up. Thats the 25-36 lot. It continued to not come up a total of 45x

the croupier watched in amazement as I broke the house limits by betting in each number.

all of a sudden, I was more worried about going home having "lost" the 10k than I was about going home having "won" 1k. So I kept going until the original $400 went too.

pretty similar experience during the tech crash.....no doubt many here can relate?

 

[bullmarket]

hi happy profits

...............I developed a "system" for roulette.....which was fairly ingenious....but never foolproof. I would wait until a "dozen" failed to be hit 18x (you could tell just walking around by the LED screens). I then began betting on that dozen, using reversion to the mean and a variation of martingale for betting.....basicly it worked flawlessly for a while.

The first night I walked in with $400 and got up to $9400 by staying there 26 hours......you guessed it, didnt want to go home until I had $10k.

No prizes for guessing what happened next......

the 3rd dozen didnt come up. Thats the 25-36 lot. It continued to not come up a total of 45x

the croupier watched in amazement as I broke the house limits by betting in each number.

all of a sudden, I was more worried about going home having "lost" the 10k than I was about going home having "won" 1k. So I kept going until the original $400 went too.............

my best advice to gamblers with a problem is............................

you've got to know when to hold em,
know when to fold em,
know when to walk away,
know when to run,
ya nevva count your money........................(I forgot the rest )



cheers

bullmarket

 

[makeorbreak]

Hey Money Tree

I take it you experienced that at Sydney Casino. I find Star city Roulette incredible for gambling.

I recommend you try Crown casino. Something about that place that betting the outside always works. I quadrupled on the weekend using the outside bets in 20 Minutes - paid for my whole trip!

 

[RichKid]

my best advice to gamblers with a problem is............................

you've got to know when to hold em,
know when to fold em,
know when to walk away,
know when to run,
ya nevva count your money........................(I forgot the rest )



cheers

bullmarket

That's a great song (The Gambler- Kenny Rogers) bm, here's the rest:

....You got to know when to hold ’em, know when to fold ’em,
Know when to walk away and know when to run.
You never count your money when you’re sittin’ at the table.
There’ll be time enough for countin’ when the dealin’s done....
http://www.lyricsfreak.com/k/kenny+rogers/the+gambler_20077886.html

 

[Julia]

my best advice to gamblers with a problem is............................

you've got to know when to hold em,
know when to fold em,
know when to walk away,
know when to run,
ya nevva count your money........................(I forgot the rest )



cheers

bullmarket

Hello Bullmarket,

I'm sure you didn't mean to trivialise the difficulties of gambling addiction, but advising a compulsive gambler to do the above is about as useful as telling an alcoholic to just have one drink.

Regards

Julia

 

[bullmarket]

Hi Julia

no - I was only joshing but I think it would be a really good song for casino's to have playing on auto-loop as background music

and thanks Richkid for the rest of the words

cheers

bullmarket

 

[happytrader]

That's a great song (The Gambler- Kenny Rogers) bm, here's the rest:

....You got to know when to hold ’em, know when to fold ’em,
Know when to walk away and know when to run.
You never count your money when you’re sittin’ at the table.
There’ll be time enough for countin’ when the dealin’s done....
http://www.lyricsfreak.com/k/kenny+rogers/the+gambler_20077886.html

These are the winning behaviours of those with a strong sense of self preservation. They will protect you in every facet of life. Wonderful habits.

The thing to remember about addictions is, just as anger is a covering emotion for fear, sadness and hurt, addictions also do the same thing. Cognitive behavioural therapy is the industry standard however, it can be very slow and costly. I've seen much higher success rates and faster results in afew sessions with other mind body therapies.

Cheers
Happytrader

 

[Knobby22]

I went up the border with some friends to play pokies and have a holiday.
It was the first time I ever played.
Anyway within an hour I won the jackpot! So I said lets go to the dancefloor and I'll shout ****tails (how ridiculous, stupid US, its a mixed drink guys) ...anyway had a good night and went back to the motel at about 2:00am.

One of my friends didn't join me and stayed playing till 5:00am with his system.
Which of course lost him everything.

It seems to me that gamblers don't understand odds and believe in terms like reversion to mean and if a coin comes up heads three times it is more likely to come up tails next time. They usually have "systems" which displays their ignorance.

B.t.w, I have hardly played the pokies since. It is such a boring waste of time.

 

[emma]

Geez, I'm a loser to-day - but I guess I'm not alone - ah well there's always to-morrow - or is that the gambler's philosophy!!!

 

[kgee]

In regards to gambling I believe discipline is the key proponent to success
I have been sports betting for 3 years now coming out on top each year
I have found it a worthwhile endeavour and many of the techniques I have learn't from gambling crosses over into trading
ie.
-Research
-if your uncertain of somthing stay away from it
-conversely if your certain of somthing "hit it hard"
-use "play money" for speculations
-set limits
-and of course theres gut instinct

I have found discipline the hardest to master...after big wins its always too easy to take a cavalier approach and bet too much on roughies/specs

if you start taking losses take a break and when you come back start slow again

Well its worked so far...but it is a work in progress and is always been refined
but the good thing is I have my whole life to improve on it
and I spose that's the final ingredient-patience

 

[Happy Profits!]

Hello Happy Profits,

Welcome, and thanks indeed for a really interesting post - not ramblings at all....

...Sounds as though the share market might be a good place to avoid until some of the emotional stuff is controlled?

Hi Julia, ad thanks for the welcome!

As I read that last sentence, a big wry grin broke out across my face...LOL, words of wisdom indeed!

money tree - oh.my.god. You have just recounted almost step by step what I did (up until recently). I started off with BJ, then thought I could "shake bad luck" by changing to a different game - i settled on 'Rapid Roulette', 'graduated' from betting on 50:50 odds to Dozens and then my next hare-brained plan was to look at which were the most frequently appearing no.s from the last 20 spins and just bet $100 on that number no more than 30 times. Figured even if I "had" to get the number on the last spin, would at least walk away with $500.

Did do pretty well from it a number of times and then things got wonky - I decided to change no.s midway, lost track of number of bets etc. Because of this, or in conjunction with it, haemorraghed stacks of green notes. The last $9000 I lost, I was completely numb and had this zombie grin on as I was hoping and praying that my number wouln't come up. It didn't. I got up, thanked the croupier, and walked out of the casino. I wasn't upset as I usually had always been - in fact, I felt 'cleansed' and clean as the chilly night air blew gently across my face.

That was about 3 months ago. I haven't put a single dollar on a BJ/Pontoon/Baccarat/Roulette table since. I'm hoping I stay that way. My only gambling now is on Lotto tix and even that, I hope to stop eventually 'cos, honestly, those things are an even worse idea than hard-core gambling. The odds are astronomical and it's death by a thousand cuts. NB: The quotation marks refer to the human folly of trying to control what is essentially, uncontrollable.

LOL, ahh...the 'round number' syndrome - the downfall of many a gambler! I can relate well... "$7709? Yuck! That's an odd number and it's ugly. It'll be a cinch to leave with a nice round 8K"...cue the House ghouls clasping their hands together in the Finger Pyramid of Evil..."Eggcelleent...Bwah hah hahah!"

makeorbreak - LOL! I don't think you should be recommending or encouraging money tree <says H P! as he runs away shrieking>

happytrader & kgee - yup, I think it's pretty hard to argue that first and foremost, discipline (as in a STRICT & UNWAVERING adherence to a viable plan) is what stops massive and catastrophic damage, be it in gambling or trading/investing.

Psychiatristry 101: addiction is a funny (not ha ha funny) and scary thing. Why do some people gulp down gallons of beer at occasional social events and have no problems the rest of the time whereas others can't even walk by the liquor stores years after their last drink? It's a curious thing innit?

Personally, that's why I'm a teetotaller and have always declined a puff of anything offered by others - I don't trust myself. IMHO, unless 'broken' or cured or managed properly, the addictive trait just migrates to a different behaviour pattern. Case in point, for the last few weeks - I've been foregoing precious sleep by trying to perform a first round KO to Muhammad Ali on my Xbox Yes, I know, immature, pathetic and no less stupid than gambling but at least my bank balance thanks me even as my panda eyes curse me! Oh, also, have recently been averaging 2 Maxibons a day.

NAyway, I've rambled long enough...just noticed this a 'Trading Strategies' thread and I'm deeply in breach of the topic!

 

[happytrader]

Hi Happy Profits

Interesting post. Actually that word discipline always elicits interesting responses from people. Try it and watch the body language or the over the top reaction, the down in the mouth or rebellious look etc. Obviously if that word can conjure up that sort of emotion it obviously holds all sorts of negative connotations. I prefer that word safely.

Cheers
Happytrader