The Downward Spiral of Trading Addiction

Trading in the financial markets is stimulating, exciting and engrossing. But one can become addicted, just like with actual casino gambling or illegal drugs. Like any severe addiction, this can cost you your job, relationships and, of course, your financial resources. In this article we will consider what causes such addiction, the symptoms and how to break out of the downward spiral. Our focus is on the brain and understanding how its reward systems can literally 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.

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 for so many employees. But this dream of fast cars and luxury is statistically likely to remain just that. The stats tell us that over 90% of amateurs lose pretty consistently. The fundamental problem is that this is a risky, speculative business, and the leveraging goes downward 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.

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 beaches of Florida or Southern California. 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
The above is sometimes just a disastrous attempt to recoup losses, rather than true addiction, but the latter often occurs for both mental and physical reasons as follows. Trading can give you a kick and a rush, and blot out reality, just like illegal 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 shot, 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. Our brain actually produces an opium-like substance called “dopamine” which, as the name suggests, can dope you into dangerous behavioral cycles. One does not want to be a trading dope! Particularly dangerous is that this doping process is, in reality, 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/or financial solvency depends on it.

Signs of Trading Addiction
Fortunately, some tell-tale symptoms should alert you or your familym 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 around the corner.

Feelings of general frustration, aggression and attempts to suppress other personal problems are other give-aways. In the worst cases, neglecting personal hygiene and physical health are also evident. And as for going around borrowing from every friend you can think of, or using one credit card to pay off another, no more needs to be said.

How to Become “Clean” Again
If you have some of the above or related symptoms, you need to face reality and take action. If you are really addicted, you probably cannot go it alone, or you would have withdrawal symptoms and likely end up back trading yourself deeper and deeper into debt and despair. Addiction and counselling 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 above danger signs do not lie. If they are present more than minimally, you are probably in real danger.

In Summary
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 real and official casino, but don’t expect to beat the house any more than you can rely on beating the market.

Dr Brian Bloch can be contacted at Brian

Dr Brian Bloch started his career as a lecturer in Economics in Johannesburg, although his own research interests at that time led him into the field of management.

He did his masters and doctorate in the field of organisational behaviour, while continuing to teach economics. On completing his doctorate, he moved to New Zealand, where he taught International Business for several years.

Subsequently, having studied German quite seriously for many years, he decided to move to Europe.  He knew a professor in the Westphalian city of Muenster (aka Münster), and moved there, and have remained in Muenster since then.  

After a couple of years full time at the Westphalian Wilhelms University of Muenster, he went freelance in 2002, which evolved into his current Work Portfolio.

Dr Brian Bloch started his career as a lecturer in Economics in Johannesburg, although his own research interests at that time led him into the field ...


At last something refreshing and true.

A really good interesting article on something I have faced and the addiction is what stops us from achieving consistency.