Thursday, July 23, 2009

Trading Addiction: The Side of Trading That Few People Discuss

Thanks to an alert reader for passing along this article on the addictive aspect of trading.

I continue to believe that this is one of the most neglected topics in the trading literature. While it is common to talk of traders who "lack discipline", rarely is there acknowledgment that such out of control behavior is often indicative of addictive behavior.

Take the trader who loses money in a downward spiral through the day, without ever taking a break or exercising restraint. How is that different from someone who drinks themselves into a coma or who gambles away the family paycheck? The circular dynamics are identical: out of control behavior, unwanted and negative consequences, remorse and guilt, efforts at control, eventual relapse and loss of control.

The tell-tale sign of trading addiction is a trader who cannot refrain from trading--even when markets are objectively offering no opportunity. Even when losses are mounting.

Who benefits from helping traders identify and overcome addictive trading? Not the brokerage firms that harvest commissions; not the exchanges that take the fees; not the vendors who sell the trading tools and service; not the "coaches" who keep the addicted traders' hopes up. All are witting or unwitting enablers.

And the families of addicted traders? Their security is lost. Too often, if they raise concerns, they are chastised for not believing in the trader's "dream", for not being supportive of a gambling problem that masquerades as a professional undertaking.

My only hope is that traders who trade addictively can marshal the courage to look in the mirror and see what they're doing to their lives, their finances, and their loved ones.

Trading can be a wonderful, noble profession and a life-affirming challenge. It can also be pursued in a way that is highly destructive. Here are some articles that might help with self-assessment and that look in the mirror:

.

6 comments:

NI-trader said...

Again, a very timely post, and a great help. Just today I felt I had to stop after a 1% loss exactly BECAUSE I felt the "need" to continue trading.

By the way, I am just making the transition from demo to live trading. I would love to read your thoughts on this very delicate period of time.

Thanks, Stefan

Bob Campbell said...

You have exposed a very good point. This is why I keep a practice account. I find it difficult not to be in the market, but my practice account fulfills that desire. Since my practice account is in the EUR/USD it also helps me analyze the stock market as well.

track said...

Here's a better discussion about that

https://www.afajof.org/journal/abstract.asp?ref=0022-1082&vid=64&iid=4&aid=13&s=-9999

uempel said...

Great post. Traders often remind me of wine connoisseurs, who enjoy a glass of wine at noon and two in the evening. And on weekends they go to the vineyards, to do some tasting. Would a wine aficionado ever admit, that he might be an alcoholic?

Frenj said...

Dr. Brett, what is the difference between the healthy fun of a beginner and the unhealthy so-called-fun of an addict?

In your book "Enhancing Trader Performance", you mention how becoming proficient at something starts with having fun doing it. In the first linked article, the trader gives at the end a very positive view of trading as something that is much fun, lucrative (at times) and easy to do. And yet, he admits "things escalated and got out of hand".

The second linked article also mentions having fun. "Another red flag is when trading stocks becomes a game — an end in itself rather than a vehicle to earn a living or build a retirement nest egg."

But isn't the doing [whatever] for its own sake, because it is fun, precisely the initial step in building proficiency?

Does an addicted person always know he is addicted? If trading becomes a "need" we "have" to satisfy, I don't see how much "fun" this could really be. Having fun should be free of negative feelings, but addicted behavior probably brings out quite a few negative feelings, like anxiety, guilt and others.

Quite a few interviewed pit traders have remarked that the very first time they ever got on a trading floor, they thought it all looked like great fun.

What would a healthy beginner, aspiring trader's profile look like? In other words, what is the difference between the healthy fun of a beginner and the unhealthy so-called-fun of an addict?

Joe Shareholder said...

Great comments, make sure if you're trading you're completely honest with your spouse. Your spouse can be a great source for checks and balances and keep you honest. I suggest only trading an alloted amount, and not adding more even if the loses accumulate. If you lose money, then you have to gain it back without adding more to your account.