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. 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. 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?
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.
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?
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?