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Gambling: The Dark Side of FX Trading

Let's admit it: when it comes to gambling, we all start to think of bad things: a father losing all of the kids' college money; an old lady spending all of her time in front of a slot machine; and perhaps a pile of money next to a roulette that just went to the bank, because the bank always wins. And nobody likes to lose money, so we stay away from gambling, but... Tell me frankly whether the trader inside of you has not dreamt at least for a moment for a sudden big win, that long-desired windfall of money that will solve your financial problems in a blink of an eye. 

 
No wonder then that so many FX traders get engulfed by the gambling passion and pass to the dark side of trading. 
 
 

Addicted to Pips

 
There is a thin line that distinguishes the healthy passion for trading from the passion for gambling: the first is mostly intellectual, it's like loving your job (this love is always limited); the second is pure instinct and lacks any control. 
 
Let me give you an example: if you wake up at night and go check how your account is doing, or the first thing you do in the morning is to read the latest financial analysis column, you're just passionate for trading, but you're no addict. On the other hand, if you're gambling, you'll simply not go to bed, and perhaps you'll never even read this text, because all you'll be doing will be staring at the price chart and shifting the stop-loss level further and further down. 
 
By the way, do not be in a hurry to label someone as “addicted” to anything – most addictions are simply made up by marketing aggressive PRs at hospitals, who claim to treat a newly made up addiction. There is a hospital that claims to treat “mobile phone addiction” and that's the same institution that offers you a cure for a “cupcake addiction”.
 
Even if there is no such thing as gambling addiction, there for sure is a wave of emotions (which can even be called affect), which accompanies gambling. And traders have found a way to control this side effect – they have started to use special trading robots: the most popular being the expert advisors (EAs), which run on the Metatrader 4 platform. And robots do not experience emotions, as far as we know: hence, at least in theory, they could safely use trading strategies without the risk of getting addicted and messing things up due to the imperfect, sensitive human nature. And recently there has been a real influx of gambling robots, adding weight to the point I'm trying to make here.
 
Which, of course, does not mean that manual traders have given up on gambling – some people just fail to concede that a machine can do better than a human being in any respect!
 
 

Can You Recognize a Gambling Strategy in Trading? 

 
A popular saying advises us to keep our friends close, and our enemies even closer: we're about to follow that advise and to get to know gambling. It's in fact useful to spot the strategies that can ruin your account and, sometimes – your entire trading career. We'd simply like to prevent losses. 
 
The two gambling methods most often used in trading are the grid and the Martingale – the first involves opening a raft of deals using a fixed interval of time between two trades or a fixed interval in the opening prices, while the second involves opening a trade with a contract size twice as big as that of a losing trade. To recognize a grid you should check the opening times of trades, as well as the difference between opening prices – and that's a time-consuming task, not to mention the boredom that one feels while performing such mathematical operations. You may start to snore in the meantime! 
 
The Martingale strategy is easily detected if you check the trade contract size after a loss – if it doubles after losses, you've found something – and that's not the Heart of the Ocean. By the way, one of the highlights of Martingale strategy is that the balance in pips is negative, while the currency balance is positive. This is the paradoxical way in which the Martingale method can make you rich. And it is in the same way, that this method can ruin your fortune!
 
Take a look at the performance of TOM's Expert Advisor: it uses Martingale and you can see the mounting losses with an ever increasing trade contract size. The thing is that both grid and Martingale involve great risks and require substantial amount of financial resources to support the account. Actually, they require infinite wealth. Is this a problem for you?
 
 

How Dark is the Dark Side?

 
In other words, is gambling so bad for your trading? Will it necessarily break your account into a million pieces, make it bankrupt and finally forgotten? Of course not. 
 
There are exceptions to the rule and one of them is the Forex Warrior EA, using a Martingale method and, in the face of this fact, being profitable. If we consider manual trading, a bright example of a grid-strategy user is FX Master 2.0, a signal provider at ZuluTrade, who has generated hefty profits for his signal copiers. 
 
And yet, this type of gambling-based trade is plagued with risks. If you're not confident about your ability to make a distinction between enough and too much, perhaps you should not start trading at all.
 
Apropos, gambling is not always bad in moral terms, especially if we consider the lotteries: did you know that the Yale University is built with the help of proceeds from lotteries? We don't ever consider the EuroMillions or Mega Millions as bad things, which is funny, given that they are also a form of gambling. 
 
 

Money for Nothing

 
And now, back to the topic, perhaps a fair way to decide whether you've passed over to the dark side will be to make up your mind about why you're trading – for money itself or for something you can buy with the money. Money in itself is nothing, it's just a mediator – and if you're trading for the love of money, you're a gambler. An FX trader is doing it for the second reason. Make your pick!
TAGS: gambling  casino  forex trading  expert advisors  ea  metatrader 4  martingale  grid  yale university  lotteries  mega millions  euromillions  addiction  forex warrior  tom's ea  zulutrade  fx master 
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