Addictive trading
What I love most about
trading is that it exercises the brain and the will. It involves ongoing
analysis and problem solving, and it requires the steady development of
performance-based skills. I’m sure serious players of chess and poker
enjoy similar benefits. Talk to any successful athlete and you’ll find someone
who has cultivated themselves, not just their bodies.
There are times, however, when trading becomes
a vehicle for destroying mind and soul. You won’t hear brokerage firms, trading
publications, or seminar producers talking much about this problem, because
their common aim is to keep the public trading and buying trading-related
products. But, as someone who has worked with many independent traders and
traders at firms, I’ve seen this problem far too often: trading
becomes an addictive activity.
Oh yes, trading coaches and psychologists
will talk about losing “discipline”, but rarely will they use the “A” word.
Discipline you work on, addictions you get rid of. If you get rid of a trading
addiction, there goes the trading coach.
Many times, however, losses of
discipline in the markets are related to addictive patterns of behavior.
An addiction occurs when an activity
provides a strong source of stimulation that, over time, leads to psychological
and sometimes physical dependence. We generally label a behavior as an addiction
when people seek out the activity even in the face of demonstrable negative
consequences. It is the inability to stop the activity when those
consequences interfere with life that marks any addiction.
Let’s look at the facts:
* According to research cited by the
National Council on Problem Gambling, 2 million adults (1% of the
population) meet the diagnostic criteria for pathological gambling. Another 4-8
million adults (2-4% of the population) can be considered problem gamblers who
are experiencing direct problems as a consequence of gambling.
* Research in psychology and psychiatry
reported in the
Oxford Textbook of Psychopathology finds that between 14 and 16 million
Americans meet diagnostic criteria for alcohol abuse or dependence. Between 4-6
million Americans are dependent upon illegal drugs.
* Rates of substance abuse among men ages
18-44 are double those of the general population.
* A family history of addictive problems is
one of the best predictors of risk for addiction. Peer influence is another
significant risk factor.
* According to a research review in the
Oxford Textbook, rates of depression are significantly higher among people with
addictions than in the general population, with indications that people are
using the addictive activities to medicate themselves for the pain of
depression.
* Addictions are also most common among
individuals with attention deficits and hyperactivity problems and appear to be
related to sensation-seeking among those needing stimulation.
Even if we assume that traders
do not have more frequent addictive behaviors than the general population, the
statistics tell us that, in all likelihood, nearly one trader in every ten has a
diagnosable addictive problem.
So what can we do about the issue?
The first step in dealing with any addictive
pattern is identifying it–and identifying it as a problem. Here are a few
questions that you might ask yourself:
* Have there been times when I told myself to
stop trading, but still found myself placing trades any way?
* Do I find myself overtrading by putting on
positions with too large size or by trading during periods when nothing is
happening?
* Have my trading losses created problems for me
in my relationship(s), or have they caused financial problems for me?
* Have people close to me told me that I need to
stop trading?
* Is the pain from losing more extreme than the
satisfaction from winning?
* Do I find my moods fluctuating with my P/L?
* Do I trade simply out of boredom sometimes?
* Do I find myself preoccupied with trading
outside of market hours at the cost of other work and relationships?
Notice that, for many of these questions, you
could substitute the word “drinking” or “gambling” for “trading”. The dynamics
of addictions are the same across the board. If you answered yes to three or
more of these questions, I would suggest that trading has become a problem for
you.
How does one deal with addictive trading? The
first step is to identify it, but the second–and harder–step is to acknowledge
that you need help for it. It’s pride that tells us we can handle it on our own
through will power, but addictions wouldn’t occur in the first place if will
power were sufficient to prevent consequences.
Telling yourself you can manage your own
addiction is itself a form of denial.
That is why a key step in Alcoholics Anonymous is
acknowledging that you are powerless against alcohol.
That is why AA substitutes mutual support for
drinking and advocates abstinence as a goal.
Through books, self-help groups, and counseling,
you learn to identify the thought and behavior patterns that drive your
addictive behaviors. You also learn to identify cravings in advance and channel
these in productive directions.
Most of all, you regain a measure of control over
your life and end the negative consequences of the addiction.
If you find yourself unable to control your
trading and you find the emotional, financial, and social consequences mounting,
that’s not a passion for trading. It’s an addiction.
Do the right things:
1) Close your account.
2) Get help.
Do it for you, your finances, and your loved
ones. Exchange addiction for control. It’ll be the best trade you ever made.
Brett N. Steenbarger,
Ph.D. is Associate Clinical Professor of Psychiatry and Behavioral Sciences at
SUNY Upstate Medical University in Syracuse, NY and author of
The Psychology of Trading (Wiley, 2003). As
Director of Trader Development for Kingstree Trading, LLC in Chicago, he has
mentored numerous professional traders and coordinated a training program for
traders. An active trader of the stock indexes, Brett utilizes
statistically-based pattern recognition for intraday trading. Brett does not
offer commercial services to traders, but maintains an archive of articles and a
trading blog at
www.brettsteenbarger.com and a blog of market
analytics at
www.traderfeed.blogspot.com. His book,
Enhancing Trader Performance, was
recently released for publication (Wiley). Â
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