Trading with a Lottery Mentality 

How many of us have had fantasies about being lottery winners? Yes, there are a few people out there who seem to have that magic touch. They win, buy another lottery ticket and win again. In fact, they are so used to winning that they begin to rely on chance to amass their wealth. You could say that they have a “lottery mentality”. Unfortunately, for a large majority of us, our dreams of hitting it big don’t materialise. We just don’t come across those rare chance events. Instead, we learn a profession, put in hard work and continue working to support our lifestyle. This is very much how the most successful traders operate. They don’t view trading as a game of chance.

Of course, we see people whose lives are transformed in a moment. They are the ones who are down and out and in need of a lucky break and finally get that break; the ones who are on their last dime after losing a job and just as they were about to give up, they get a job offer. Maybe it is an athlete who trained their whole career for that one moment in the spotlight and score the winning goal in a championship. Yes, there is some skill involved, but when we experience these key moments, luck is usually involved too. It is like you or I buying a Lotto ticket one day and hoping that this time, it is a winner.

If we are experienced and successful traders, we don’t look at trading as we would buying a lottery ticket. However, many of us will have at least one great winning trade in our careers.

During a series of interviews, a number of traders were asked about their winning trade. I wanted to share a few of the responses.

One trader named Mike traded currencies and said, “One day I was trading Yen, and made around $18,000 in just a day.” Sarah invested in Juno Online and told the interviewer that, “I bought about 3000 shares, and the stock went up 20 points in two days. It went up fast and there was really no reason for it. I had a feeling it was just hype and euphoria, so I sold out and made $60,000.” Then there was Jack who had his big win during the peak of the dot-com boom. Jack explained that, “A European auction company was upgraded one morning. It was touted as the next eBay. CNBC was playing it up. The stock had just split and they got the price target a little bit wrong. They quoted an ungodly high amount. This was merely a single digit stock. That morning it had traded up over 100.1 shorted it as it was opening. It opened at 80 or 90 and it ran up to 120.1 ended up covering the next day at half of what I shorted it for.”

We can see that yes, there are those of us that can strike it rich with one lucky trade. However, do we want to rely on a once-in-a-lifetime event that may or may not happen to determine our future? That is what I call a lottery mind-set. With this type of mentality, we can feel very much unsettled and maintaining discipline will be tough. We may be prone to taking chances with a large amount of capital, meaning when we lose, we will lose big.

I always suggest a more practical and calculated approach. Now, I am not saying that we should never venture out and take a risk. What I am saying is, we need to keep our confidence level in check. Over-confidence can get us into trouble. We should not live on the hope that one or two big wins will come our way to compensate for all we have lost by taking unnecessary risks. What if that win never comes? What we should do is look for high probability, strong trade set-ups, create well thought out trading plans, maintain our discipline and trade smartly.

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