Sunday, March 21, 2010

Addictive Trading: When Trading Becomes a Problem

I recently encountered a daytrader who had blown up his trading account.

For the third time.

He was now making the rounds of prop firms to get money to trade.

He had reached middle age. He had a family.

He was "ready to get to the next level."

He had a "passion for trading."

He had no profits to show for years of trading...indeed, he had gone through the family savings.

He had no trading journals, no records to document any progress that he had made as a trader.

Because he had a "passion for trading", not a passion for mastering markets.

What a complete fail.

What makes such a person different from a problem gambler? A person addicted to drugs or alcohol?

The consequences are no different; nor is the waste of life.

If you've been trading for years and have little to show for your efforts, consider the possibility that trading is your problem, not your answer.

Then--for your family, for yourself, for the future--do the right thing and find your genuine path in life.

A good start can be found from among the links below:

The Problem of Trading Addiction

Evaluating Problem Trading and Getting Your Life Back

14 Symptoms of Trading Addiction

Warning Signs of Problem Trading


Yep said...

Hi Brett,

Another great post, this one about the destructive consequences of trading. I’ve come to the conclusion over many months that I have a gambling/trading problem. The reason I’m explaining this is maybe someone will see in me how this can evolve into a serious problem. I’m a male in my early 40s. I inherited an addictive personality from both sides of my family. I’ve also been diagnosed the attention deficit disorder by multiple physicians. I no longer take any medications for ADD - I just live with it. I don’t drink or do hardcore drugs, but up until a few weeks ago I abused marijuana regularly. I actually thought it helped my trading as stupid as that may sound.

It started off very benign. I began “investing” in my free time when I travelled for work as a consultant. Travelling for work in all the wrong places over 10 years – I spent my nights on investing forums discussing commodity stocks and trading strategies. I wasn’t married yet. Fundamental analysis was natural for me with my accounting background. I started to really pick up TA and became pretty proficient. Soon my investments were all I ever cared about. I would check my investments and do trades while at work. I lived to trade! Towards the end, I spent at least a third of my time at work following the market and investing forums. I had to watch it every minute. I also spent 6-7 hours doing the same before and after work. I did my research all weekend. It was beginning to really consume me.

I was fortunate enough to anticipate the financial collapse. I made a tremendous amount of money buying put options on banks like Bear Stearns and riding them into the ground. The stakes became so high in 2008 that I quite working altogether and focused on my “passion”. I stayed home and tried to focus 100% on the markets and making money. This addiction is cruel. I’ve made lots of money and I’ve also lost great amounts of money. I ran my account from about $40K to over a million over 7 years. I also lost more than half a million spectacularly over a few months awhile ago. Options are evil. That left me doing some real soul searching. WTF happened?

In the end I don’t have much to show my efforts. I’ve become a recluse and completely directionless. I’m really stuck in the mud. I love my wife dearly and hope she doesn’t give up on me. I would. Every little thing has become extremely difficult. I know how to check my stocks and the markets, but I can’t manage to do much anything else. I thought I was trading my way into financial freedom to find out I’ve traded away my dreams and aspirations. This is my hell. I want my good life back.

TradingToWinMeansFollowTheRules said...

Without a doubt Brett, your blog is the best blog out there for me personally. I thoroughly enjoy reading your posts and this one is very very true with respect to trading becoming a problem.

I have had this issue in the past and have found that the only way to really get to the root of the problem is to keep a solid trading journal and break down what works and what doesn't. I have found that what doesn't work is my "manual" trading that is not part of the trading plan at the outset. When I strip this out, things look good. So, the solution for me is to cut this out and as you mentioned in a post I think over the weekend, use some distractions/make trading less important in your life etc etc almost thereby giving me only time to follow trades that are part of my plan

Keep up the excellent postings

jooo said...

Can I say to the first commentator there that it might be best to get some sort of part time job.

It would help bring some normality back to your lifestyle and also force time management.

Trading from home is isolating I think, possibly disorienting and a pretty extreme job to have.
It sounds alot like, less is more could be the solution there

Good luck all home traders :)

Brett Steenbarger, Ph.D. said...

Thanks, Yep, for the eye-opening and heartfelt response. I wish you the best of luck in using this "recluse" time to get back to basics, figure out where your talents and interests lie, and recraft a fulfilling life for you and your family. It's getting back to you that will give you your good life back--


Barry said...

Yep, I just read your response. I'm in the same situation as you. Actually I'm in law school at the moment. But trading is already an obstacle to my studies for some years. I have times that i can get away from the markets for days or weeks, but then i take a look again. The day after again, half an hour later again and there we go again. Following markets every minut of the day. Trying to find the system to make money. Too stuborn to admit to yourself that such a system does not exist. And now i'm in trouble with my studies, with my parents, social contacts, and most of all with myself. I am so angry with myself. I wish i would have lived 50 years ago, when there were no computers. I already threw away my smart phone but i need my computer for school... Fuck the market. Fuck it being able to trade leveraged and Without a real person (broker) needed.

Nifty Trader said...

Dear Dr Steenbarger, Regarding your post on addictions vs passion for trading, I need to analyse my case. I have lost considerable money (USD 30K till date), though for last 1 year I have scaled it down to USD 2K (when I realized I am doing trading for the heck of trading and not making any money) till I learn the trading and the account has been stuck at those level. I don't feel like focusing on other works. I just keep doing back testing, learning new things and watching videos on trading during my spare time, stretching upto 14 hours a day (8 hours of market + 6 hours of other stuff). Only improvement now is I don't lose any money, though I don't make it also. Now, I learn, since my system is now sufficiently objectively, I just need to put a physical SL and go about trading my system. But, I still find this behaviour addictive since I can easily make USD 4K in other jobs (which is a big amount if India), but I still like programming, anlaytics and trading where I have struggle enough without much gains. I plan to automate my system and then go about trading, but I would still like to trade than anything else. Please suggest how should I do self check and a self analysis if I am on the right track. Over last 1 yr of full time trading only improvement has been that after losing 30K over 2 yrs, now for 1 yr I have been break-even to marginally positive. Though I have brought down the frequency of trading from 5-15min chart to daily charts.
Best regards,


Brett Steenbarger, Ph.D. said...

Thanks for sharing your situation, Nitin. Here is the distinction I make: when engaged in properly, trading makes one a better person across various aspects of life. When engaged in addictively, trading becomes one's life and takes away from other priorities. The nature of an addiction is that it doesn't fit into your life; it takes over your life. Often, it is your closest friends and relatives who can give you the best feedback about whether trading has made you better or stolen your soul.