Thursday, March 27, 2008

Trading Addiction Linkfest

My recent post reviewed research that suggests a link between risk-taking and addictive behavior. It's not just that an "addictive personality" will take undue risks; in addition, repeated large risk taking alters the structure and function of the brain so as to sustain addictive behavior. Many traders I've worked with never had discipline problems or out-of-control behaviors until they began frequent daytrading. When you think of traders at some firms placing 100 or more trades a day--basically one every four minutes--it's difficult to imagine that such frequent and unremitting risk/reward swings *wouldn't* affect the workings of mind and brain.

What's more, as Dr. Bruce Hong notes, is that exhausting frustration tolerance and willpower on one set of tasks appears to make us less disciplined on subsequent ones. That is how bad trading often leads to further bad trading, but also can lead to poor decision-making in other facets of life.

One of my first clues that a trader might be out of control is that he/she can't take a break from trading when he/she is losing money and can't reduce his/her risk after a series of losing days. This is very similar to the drinker who cannot stop imbibing alcohol even after the point of consequences.

If you are losing money and cannot stop yourself from trading--during a single trading day or after days of loss--I encourage you to take the hard look in the mirror at what you might be doing to your trading account, your emotions, your brain, your relationships, and your life.

Here are some posts regarding trading addiction that shed useful light--and offer helpful suggestions--regarding this painful and sensitive topic:

* When Trading Gets Out of Control

* Addictive Trading and Getting Your Life Back

* Craving Trading Highs

Warning Signs of Trading Addiction


Stewie said...

brett. you are a genius and you always inspire me and remind me what trading is all about. you are the single greatest gift to the trading world. we all appreciate what you do!


Steve said...

Dr. Brett,

How does one handle the exact opposite e.g. under trading? After losing for so so long, I've become gun shy. Yet I paper trade or even call out trades to myself as they're developing and they work often enough that it's a real edge, as I've defined it. Yet, getting myself to consistently apply the method with live money has become quite difficult.

When I didn't know what I didn't know early in my career, pulling the trigger was never a problem. Now, it seems that even 100 SPY shares or 1 ES contract seems formidable.


BH_Trade said...

On Tweeter you mentioned you were not impressed with the lack of follow through on this week's rally. While that may be true for the financials, the the broader market (Russell 2k) has held up remarkably well and has retraced the least essentially trading sideways for 3.5 consecutive days now. That impresses me so far. Money seems to be flowing back into the high betas after a sustained period of weakness.

Anatrader said...


Like any addiction, one must cultivate the discipline to take a breather or walk away from the pc when one is aware of the signs of burnout!

Also, one should realise there is always the Ebb & Flow or Seasonality biases in markets.

Perhaps, readers would like to read more about Ebb & Flow at:

Brett Steenbarger, Ph.D. said...

Thanks, Stewie; you're much too generous in your praise. I appreciate the feedback--


Brett Steenbarger, Ph.D. said...

Hi Steve,

The opposite problem is performance anxiety, and that can be handled very well by a variety of cognitive and behavioral methods. I summarize some of those methods in two chapters in my Trader Performance book; you can also find relevant posts on the blog by doing an advanced search in Alexa or Technorati and searching for posts on "performance anxiety" specific to the TraderFeed URL. Hope those resources are helpful--


Brett Steenbarger, Ph.D. said...

Hi BH Trade,

Yes, the Russell stocks have held up better the last few days than the SPX stocks. I'm not seeing impressive new 20-day high/low figures, however, for stocks overall and today the NYSE TICK rolled over as well.


Paul said...

What's the distinction between "addiction" and "obsessive-compulsive tendencies" with something like this?

Phileo said...

Or you can get google to search this blog by entering "performance anxiety" or any other search keyword into the box in the upper left corner of this blog - with the right search keywords, you can mine a wealth of information from TraderFeed - Thanks Dr.Brett!