Trading has often been compared to gambling. The comparison is generally done because the decision processes are similar: guess a direction, make a bet, win or lose money (often quickly). There are differences, but those are for another post. The aspects not many people talk about are the addictive attributes of everyday trading.
The American Psychological Association diagnoses a gambling disorder if four of the following nine symptoms have occured in the past year:
- Need to gamble with increasing amount of money to achieve the desired excitement
- Restless or irritable when trying to cut down or stop gambling
- Repeated unsuccessful efforts to control, cut back on or stop gambling
- Frequent thoughts about gambling (such as reliving past gambling experiences, planning the next gambling venture, thinking of ways to get money to gamble)
- Often gambling when feeling distressed
- After losing money gambling, often returning to get even (referred to as “chasing” one’s losses)
- Lying to conceal gambling activity
- Jeopardizing or losing a significant relationship, job or educational/career opportunity because of gambling
- Relying on others to help with money problems caused by gambling
I think anyone who has traded for even a few months can recognize the potential for any of these symptoms to develop in one’s life. I have highlighted the ones that resonate most with me.
If you scroll through the pages of this blog or search for the tag “overtrading” you will recognize how often I reference to it. It’s probably my biggest obstacle on my way to greater profits. Well, I think my struggle with overtrading is the equivalent of #2 and #3 on this list.
#4 is a tricky one because I don’t know of anyone who has been really successful at their craft without being “obsessed” with it. Ask any professional athlete, CEO of a startup, or a mother for that matter: they think about their work all the time! I suspect in the case of a negative addiction, one is really obsessing about behaviors that aren’t productive, indeed outright destructive. In trading, especially when going through a protracted drawdown, the thought pattern can resemble that of an addicted, obsessed gambler and the actions can become destructive. The positive alternative is the trader who has a plan or a system that has already been proven to be successful. He uses the drawdown period to study more aspects of the markets and of his plan, and may even tweak his trading plan ever so slightly to incorporate what he has learned. Yes obsessed, but in a good way.
#6 is the biggest similarity between traders and gamblers: chasing one’s losses. In the classic trading book “What I Learned Losing a Million Dollars” Jim Paul displays the quintessential gambler’s mindset. Following disastrous losses that forced his company to close his trades, he said “I wasn’t going to quit playing. I was going to quit losing.” The burning desire to stop the pain of losses is seen only through the possibility of winning. Stopping the negative behavior isn’t enough. The trader/gambler has to make up for the losses. When that desperation enters a trader’s mind, he’s on his way to ruin.
I have tasted bits and pieces of these symptoms, like the time I risked $50,000 to make over $1,000,000 during a six-month span, but turned around and lost almost all of in the following four months (and I would have lost more if my boss hadn’t forced me to take a break from trading). I’m pretty sure I’m not addicted today, but I have tasted its trappings and I can appreciate its ever-present danger, especially now that I’m not part of a team.
What has your experience taught you? Are you addicted to trading? Comment below or send me a message if you want to share your story.