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.
In this post, we’re going to explore how having a lottery mentality when it comes to investing and trading can be detrimental, as well as how having the right mentality can help you succeed.
Having a Lottery Mentality
Many investors and traders approach investing and trading with the idea of relying on chance. They think that a stock or currency pair is going to move in the direction of their prediction and they are willing to risk large sums of money.
This approach often results in disaster. When it comes to investing, relying on chance is no different than playing the lottery. You’re essentially making bets with your money and hoping for the best. The problem with this approach is that you’re not actually doing any research or analysis. You’re just relying on luck and hoping for the best.
You Can’t Rely On Luck
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.
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.”
It’s great when these stories come to fruition, but you need to keep in mind that these stories that you hear are only one snapshot of these people’s journeys. They represent only a brief moment of success.
Relying on luck alone is not a sound strategy for building wealth. Plus, it’s generally not a great feeling to know that all your success rests in the hands of chance (or even worse, someone else) – you’ll constantly feel like you’re in danger of having it all slip away.
Wouldn’t you rather be in control of your financial situation?
The Right Mentality for Investing and Trading
The right approach to investing and trading is one that requires research, knowledge, discipline, and strategy. It’s not about making bets but rather making smart investments based on research, analysis and an understanding of the markets.
It’s important to approach investing and trading as a business rather than a game of chance. You should be looking for opportunities that offer good risk-reward ratios, with proper position sizing to make sure you don’t lose too much money in any one trade.
➜ Related Post: If this is something you’re not sure how to do, and you’d like some help, you can check out my comprehensive post here: Going From Absolute Novice To Confident Investor (The Complete Stock Investing Guide)
Conclusion
By taking the proper approach to trading and investing, you can put yourself in a position to succeed and build wealth over the long-term. You may not be as lucky as some people, but if you have the right mentality and approach, you will be able to achieve your financial goals.
Good luck!
Terry
