Trading in the financial markets is stimulating, exciting and engrossing. But you can become addicted, just like with actual casino gambling or using illicit drugs. Like any severe addiction, trading addiction can cost you your job, relationships and, of course, your financial resources. In this article, we will talk about what causes trading addiction, the symptoms and how to break out of the downward spiral. The problem focuses on the brain and understanding how its reward systems can train you to trade compulsively and dangerously.

German financial psychologist Norman Welz works constantly with these issues, as well as with the people affected, and his input and recommendations are reflected below.

Key Takeaways

  • Trading—with its promise of high income, financial freedom, sometimes frenetic pace, highs, and lows—can become an addiction for some people, just like alcohol or gambling.
  • While some average investors might luck out and strike it rich, most people end up losing money and if the addiction takes over their lives, can lose jobs, relationships, and even their homes.
  • In a classic downward spiral, an amateur wins thanks to beginner's luck, then loses, then tries to recover the losses, but instead loses more and more as they keep trying to dig out of a deepening hole.
  • Signs of addiction include blowing through your financial resources, falling into debt, neglecting your job, family, and friends, losing sleep, and otherwise failing to tend to your health and wellbeing.
  • Once you realize that you have a serious problem, trying to pull yourself out of your addiction alone is a recipe for disaster; instead, reach out to family and friends and get professional help.

The Temptations of Trading

You can make a lot of money from trading. And you can do it more or less on your own whenever you like, without a boss or being embedded in a company, both of which may be driving you around the bend. There are lots of ways to make money by trading, irrespective of whether markets rise, fall or stagnate. Also, you can do it fast, thanks to leveraging.

In theory (sadly, far more so than in practice), you could become financially independent, which is a dream that tempts many 9-to-5ers. But this dream of fast cars and luxury is statistically likely to remain just that. The stats show that 90% of amateurs lose pretty consistently. The fundamental problem is that this is a risky, speculative business, and the leveraging goes down just as fast and as much as it goes upward. If it goes sour on you, you can lose your proverbial shirt and a whole lot more.

Trading, like gambling, holds the promise of great financial rewards, but with those rewards are also great risk, something many investors tend to downplay.

The Classic Downward Spiral

All of the above create an environment that can lead to addiction, and some behavioral patterns can easily induce a self-perpetuating disaster. First, if things go well, people think they know what they are doing and bet more in their efforts to make a fortune, retire and move to the beach. However, if these initial successes were just beginner's luck, which is common, they will probably soon turn into horrendous losses. The next psychological trap is to try and win back the losses, which tends to entail progressively risky and ill-fated punts and a journey into the pits of despair.

True Addiction

That scenario is sometimes just a disastrous attempt to recoup losses, rather than true addiction, but the latter often occurs for both mental and physical reasons. Trading can give you a kick and a rush, and blot out reality, just like illicit drugs. If there is an innate psychological tendency toward compulsion and addiction, the initially harmless (cheap) thrills can turn into an obsessive desire to repeat and prolong the pleasure. However, just as heroin addicts reputedly spend most of their junkie careers chasing unsuccessfully after the incredible high of the first time, so too it is with trading addicts.

A small part of the brain, called the nucleus accumbens, is responsible for evaluating and reacting to our experiences. It is the “pleasure center” that responds to all sorts of things, including good food, chocolate, alcohol, sex and, of course, thrilling financial trading. The brain actually produces an opium-like substance called dopamine that rewards the brain's pleasure centers. Dopamine reinforces a kind of training process by your own brain. You get rewarded for certain activities, so you learn to do them passionately. It is therefore hard to retrain and go into reverse, even if your life and financial solvency depend on it.

Like any addiction, if the thing you are fixated on, in this case, trading, has essentially taken over your life, it is crucial to acknowledge the problem and seek help.

Signs of Trading Addiction

Fortunately, some tell-tale symptoms should alert you or your family or friends to a very real problem and danger. If you spend far too much of your free time trading—thus neglecting family, friends and a full-time job—you need to worry. Similarly, if not only your life seems to revolve around trading, but you are putting more and more money into the process, disaster may be just around the corner.

Feelings of general frustration, aggression, and attempts to suppress other personal problems are other signs. In the worst cases, neglecting personal hygiene and physical health are also evident. And if you're borrowing money from friends or using one credit card to pay off another, it's a sure sign you've got a problem.

How to Become 'Clean' Again

If you have symptoms of trading addiction, you need to take action. If you are really addicted, you probably cannot go it alone, or you will likely end up back trading yourself deeper and deeper into debt and despair. Addiction and counseling centers know all about this and are trained to help you retrain your brain.

Be open with family and friends, and seek out their support. In any event, the trading addiction may not be the real problem, so you may need to figure out what really underlies the gambling. Bear in mind that every addict has a different and unique story. Even if you think you don't really have a problem and could “stop anytime,” be aware that the danger signs do not lie. If the signs are prominent, you are probably in real danger.

The Bottom Line

If you are addicted to trading or could be, you must find a way out of this perilous situation. If you trade sensibly and prudently, that is fine, but make sure you monitor your activities and keep things under control. Whatever the case, get proper training and do it professionally. If you really want to gamble, it is probably better to do it in a casino, but don’t expect to beat the house any more than you can rely on beating the market.