Speculating in the markets, when practiced the right way, is not gambling. True speculating involves much more than a blind gamble. But on the other hand, there are some people who use Wall Street as a substitute for the Strip in Las Vegas. These traders gamble on the markets—and that kind of market investing can certainly turn into an addiction.
An addiction occurs when a given behavior (food, sex, money, drugs, or what have you) provides an intense stimulation that fuels the brain’s reward system. The reward loops and pathways in the brain get so reinforced in the process that the instigating behavior takes on a life of its own. People with addictions seek out the behavior primarily to feed the reward system (to feel good). Oftentimes much of the euphoric effect of the “drug” that was initially enjoyed by the user is eventually depleted or lost, even though the reward center’s desire for more and more of the drug persists. Addicts are unable to stop doing the behavior, despite their awareness of substantial negative consequences tied to the behavior.
Successful traders, as we have already seen, want to trade because it is a challenge and a forum to test their mental prowess. It’s a true game of chess, one where the stakes are high. Addictive traders, on the other hand, have developed a need for trading. Their focus is not on the challenge, but rather on getting a high from the excitement of trading itself. An addicted trader is a poor manager of risk and his money. Addictive traders are unable to stop themselves from trading and hence always overtrade. They feel compelled to keep placing another trade, because they get a rush (a “high”) from the actual act of trading. As the intensity and duration of the drug’s “high” diminishes, they usually have to use the drug (the trade) on a more frequent basis, and they tend to require larger doses of the drug as well (bigger trades), or turn to drugs with a greater link to excitement (think day trading).
People who are very high in both N and E (a.k.a. “unstable extroverts”) are especially prone to adopting addictive behaviors, and particular facets N5 (impulsivity) and E5 (excitement seeking) are involved. People very low in C5 (self-discipline) are also at risk of addictive behaviors. If your personality profile puts you at risk for addictive behaviors or if you have ever wondered whether you may be developing an addiction to trading the markets, it is important that you be screened. Some good screening questions you can ask yourself include:
1. Have I ever tried to cut back on or stop trading only to find that I could not?
2. Has anyone close to me ever told me she is annoyed by how much I trade, or has she even asked me outright to stop trading?
3. Do I ever feel guilty about my trading behaviors?
4. Do I trade simply out of boredom?
5. Am I trading merely to obtain a sense of excitement in my life?
6. Have I developed a pattern in which I am trading larger and larger sums of money in order to achieve the same level of excitement?
7. Have I developed a pattern in which I am trading more frequently, such as having a shorter duration between one trade and the next trade, or where the duration of individual trades is getting shorter?
8. Have my trading losses created problems in my relationships (with my spouse or children)?
9. Have my trading losses caused significant financial problems (borrowing money, selling off personal effects in order to trade, bankruptcy, lien on the house)?
10. Do I find myself preoccupied with trading outside of market hours, at the expense of other important areas in my life (eating healthfully, maintaining the car, and so on)?
If you answered yes to at least three of the above ten questions, it is possible that you have taken on pathological trading behavior and an addiction to trading may be developing. If so, this is serious, and you need to seek a qualified professional assessment (a psychiatrist or a psychologist). Get help right away.
After you get help, do not return to trading. Like the alcoholic who relapses because he thinks he will be able to manage or control “just one drink,” once your brain has developed a memory of addictive trading behavior, it is forever prewired to lapse right back into it. One drink will surely lead to a full relapse in the alcoholic—and the same thing happens to trading addicts who stubbornly believe they can return to the markets with better self-control the second time around. The social and other environmental cues are too strong. The pathways in the brain have been trained too well. Do not even contemplate the idea of returning to trading if you have a history of a trading addiction.