David knew the Canadian dollar was about to make a once-in-a-decade move. He knew it the way an alcoholic just knows this will be his last drink of the night. So he went in with everything he had and then some (compliments of his margin account), and sat back to watch the exchange rate swing in his favor. And swing it did; only in the wrong direction.
By the closing bell, David, an avid day trader (who asked that his last name be withheld), had lost it all. He did the only thing he could do: He found a pub. Then he found a new trading strategy to invest in.
“Of course you feel horrible afterwards,” he says now, “but I just needed to have the feeling of seeing my money going up and down.”
Day trading can be a rush. Whether you’re winning or losing, making a profit or burning through accounts, it often engenders a surge of adrenaline.
But this “isn’t necessarily a bad thing,” writes one Redditor on the /Daytrading forum. “It gets me out of bed before 8:30 every morning, M-F, otherwise I’d probably sleep til noon.”
But when does day trading become a problem?
The dark side of day trading. For David, it started slowly. His day trading began with him burning about 10% of his salary on the stock market every month. This didn’t amount to much when he was entry level, but as his salary grew, so did the size of that 10%.
“My approach was very emotional: Either I was right or I was getting in bigger until I was right,” he says. “I remember staying up at night many times to catch the openings and to implement some strategies; things that maybe worked for a while but then got smashed by the need of adrenaline. So after many days in gain there was always a self-destructive day in deep loss.”
And yet, he continues to day trade today. “I don’t know if it’s boredom or what,” he says. “I have to have an order running and feel the emotion of being against the market.”
That emotion is not unique to day trading. In fact, another far more pervasive extracurricular activity is known to create it even more: gambling.
A day trader by any other name. Both gambling and high-risk stock trading generate a rush of dopamine in some people, says Lia Nower, professor and director of the Center for Gambling Studies at Rutgers School of Social Work in New Brunswick, New Jersey.
Stock trading can be a form of investing. But when the incentive becomes getting the dopamine-induced rush of making a trade, investors become gamblers in the stock market.
“Traders, as the gamblers, learn to associate their behavior with getting positive reinforcement (money),” says Riccardo Guglielmo, a psychiatrist at Fribourg Network of Mental Health in Switzerland who first came across online trading addiction while working at the Centre for Addiction at the Catholic University of Rome.
There’s also negative reinforcement: Trading and gambling help people avoid boredom, “to get up, to forget problems and worries,” he says.
Day trading in and of itself is not addictive; it’s the gambling behavior that is the addiction, Nower says. Stocks are just provide the action.
“You’re addicted to gambling on high-risk stocks,” she says.
How to tell if your day trading is an addiction. Nower says all problem gamblers develop a habit that is fueled by illogical thoughts about the ability to win or beat Lady Luck. Problems arise when they “chase” their losses, hoping to win back what they lost. But there are generally three sub-types of people who develop a gambling addiction:
— Those with no history of mental health problems who gamble for fun, but gamble more than they can afford to lose.
— People with histories of depression or anxiety, or child abuse or neglect, who are looking to escape from themselves or feel excited and alive.
— Pleasure-seekers or impulsive risk-takers, who often also engage in other high-risk activities like drug use.
Day traders often fall into the last group, she says. Many stock brokers also fit this personality type. So it should come as no surprise that Nower has found some brokers who are addicted to gambling with high-risk stocks.
According to Guglielmo, some signs you may be addicted to day trading include:
— Spending more and more time on the stock market, such as to continuously check your positions
— Trading has become the main activity of your day
— Feeling compelled to day trade and becoming restless or irritable when attempting to cut down on trading
— Trying to recover losses and restore control by trading more, sometimes in increasing denominations
— Needing to spend increasing amounts of time trading and/or looking for new financial instruments to invest in
— Your outside life being impacted by your trading, perhaps through altered sleep patterns, loss of interest in previous hobbies or activities, or a jeopardized relationship or job
— Suicidal ideation due to financial losses
Nower adds that trying to time the market, buying and selling stocks frequently rather than investing long term, and investing in risky stocks are other red flags that your day trading may be an addiction.
I have a day trading addiction; now what? There’s not a lot of recourse for people with a day trading addiction. You could seek out a counselor who is certified in treating gambling addiction, Nower says. “Day traders who feel they’ve lost control should seek out a certified gambling counselor in your state.”
Day trading addiction is very specific. Not all counselors will have the expertise to treat pathological day traders.
“As a gambling counselor, I would treat someone whose primary activity is slot machines far differently than someone whose primarily gambling in stock trading,” she says. “But the underlying activity of chasing the action of gambling and how to address it takes specialized training.”
And a day trading addiction is seldom the only concern traders face. “There is a ‘network of addictions,'” Guglielmo say. Often someone with a day trading addiction will have other addictive behaviors like gambling and struggling with alcohol or drug use.
“People with addiction to trading also have a double diagnosis,” Guglielmo says. Day traders often try to self-treat feelings of depression with trading.
Because day traders often face more than one addictive disorder, day traders should be treated at a specialized psychiatric services provider that can address all facets of the addiction.
While treatment is possible, it is often a long road to recovery for addicted day traders. As with all addictions the first step is determining if you even have a trading addiction. Are you gambling or investing? Is your day trading an addiction, or is it just an engaging past time?
“I think there is a very thin line between a real passion and an addiction,” David says. “I am not sure where I stand.” Are you?
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