Gambling, betting or speculating? What’s the difference?
After reading Jim Paul’s book, it got me thinking about my system. What was I doing each time?
What we want to do is trade, but are we sometimes betting? What’s the difference?
How Paul sees it:
- If it’s for entertainment, then we’re gambling.
- Emotionally attached to the outcome—and ego is involved—then we’re betting.
- Assessed the risk and the probability the chances are it qualifies as speculation.
Trading, on the other hand, is speculation that follows a plan.
(The same applies to investors, just over a longer timeline).
Sounds straightforward. But in the heat of the (trade) moment what was I doing? What are the clues?
Do I get upset, even mildly, when taking a loss?
Alternatively, do I get quite pleased with myself when I record a win?
Was my risk measured, apportioned and applied?
Did my ‘trade’ follow my plan (precisely)?
Did I improvise in some way?
To ensure I have a trader’s approach—and that I don’t lapse into what could be categorised as betting—I use a checklist.
When I’ve developed my trading plan, and tested it, I take a lot of time to distil it into a checklist format.
As an ex-aviator, checklists were very much part of working life. However, ironically it was the book ‘The Checklist’ by Atul Gawande (a surgeon taking lessons from aviation!) that brought home the more profound need for a checklist.
Checklists are not a bullet abbreviation of a plan. That wouldn’t work. Still too detailed more likely. An index for aviation, surgery and trading is often time-critical. Therefore, such a reference is an item all on its own.
It contains stuff that if missed, could be very unhelpful if not catastrophic.
Maybe items not found in a manual or plan.
An example Gawandy uses is the checklist from a light aeroplane where one emergency starts with the words ‘fly the aircraft first’.
My trade entry checklist has such a beginning: ‘(on review) at the month’s end, will this entry be apparent?’
My trading plan is one thing, but to make sure I implement it speculatively (as a trader)—and keep mister ego at bay—I need my checklist.