Day trading has become one of the most popular ways that many people are making money online. It involves analyzing, buying and selling financial assets like stocks, currencies, bonds, crypto, and commodities with the goal of generating a profit.
There are many aspects of day trading – and investing – that you need to know, including strategies, technical and fundamental analysis, and price action. Perhaps, the most important aspect is psychology or emotions.
Some of the most important psychological concepts to keep in mind are biases – like anchoring and crowds -, stress or depression, and addiction.
This article will focus on the issue of day trading addiction and some of the top ways to avoid it.
What is day trading addiction?
Day trading is often compared with gambling. While the two have some similarities, they are significantly different. One of the similarities between trading and gambling is that one can get addicted to both.
Day trading addiction is defined as a chronic dysfunction that leads to an inability to stop day trading even though it may cause psychological harm. It is also known as day trading disorder.
People who are addicted to day trading will often trade for long hours, including during the weekend. In many cases, they will over-trade even when their trades are not profitable.
While not many studies have focused on day trading addiction, experts believe that many people are becoming addicted these days. Besides, the number of American day traders is rising, helped by the rise of commission-free brokers like Robinhood and Schwab.
Globally, the number of day trading is much higher. The concept of forex trading has become so popular now that people can start with as little as $50. As such, there is a close correlation between the number of day traders and trading addicts.
Why is day trading addiction bad?
There are many reasons why day trading is bad and why you should aim to avoid it. Some of the most important reasons are:
A major reason why day trading addiction is bad is that it could deny you a proper work-life balance, which is an important part.
People who are addicted will often trade for over ten hours every day. And by doing that, these people will often neglect their families, which can have negative implications, especially to the children.
Weak financial performance
An important reality is that people who are addicted to day trading are not always the best performers. In some cases, overtrading leads to fear of diminished returns in the market.
This happens for several reasons. For example, when you are addicted, you will often not do adequate research before entering a trade.
Depression or persistent stress
The other con of trading addiction is that it can lead to depression or persistent stress, especially when the trades are not doing well.
Depression, in turn, can lead to more challenges, including worse mental illness and weak trading performance. In some cases, we have seen many traders take their own lives or even get into substance abuse.
Further, day trading addiction is bad because it can lead to health issues. For one, when you are addicted, you will often have no time for exercise and even simple things like taking regular walks.
Therefore, you might find yourself with weight issues, heart disease, and weakened bones and muscles.
Debt and financial burden
The other implication for day trading addition is that of debt and poor financial management. When you are addicted, you might find yourself being in so much debt, which, in turn, can have negative psychological implications.
When you are addicted and not making strong profits, you might be inclined to borrow money, either from banks or friends and family members. This situation can lead you into a debt cycle, which does not end well.
Finally, day trading addiction can lead to low productivity, especially when you are a student or have a full-time job.
For example, when you are constantly overtrading, there is a likelihood that you will not focus on your work or studies. As a result, there is a possibility that you could get fired or have weak results at school.
Signs you are a day trading addict
A common aspect of addiction is that many addicts are often in denial. In most cases, these people will often reject the notion that they have an addiction or a problem. There are several things to look at when assessing whether you have an addiction issue:
- You day trade so much – The most common sign that you are addicted is when you trade too much even when things are not going well. In most cases, addicted day traders will trade from early morning to late evening.
- Repeatedly engaging in risky behavior – Another sign that you’re addicted is that you engage in a lot of risky behavior such as overtrading, using too much leverage, and opening huge trades.
- Feeling anxious when not able to trade – In many cases, you might find yourself feeling too anxious when you are not able to trade. If you are a stock trader, you hate the weekends and public holidays.
- Trading in a losing streak – Another sign of trading addiction is when you are constantly trading even when you are on a losing streak.
- Constant preoccupation with the market – You might find yourself too preoccupied with the financial market. This involves constantly looking at stock feeds and other details.
How to avoid or mitigate trading addiction
Trading addiction can be dangerous and even fatal. Therefore, avoiding or mitigating it can be of great benefit to you. Fortunately, there are several strategies that can help you prevent or mitigate trading addiction.
Use a trading journal
A trading journal is a document where you write down all your trading information. In it, you enter details like assets you are trading, entry and exit prices, reasons for the entry, and the profit or loss.
Having and sticking to the trading journal will help you be grounded and avoid making common mistakes.
Take regular breaks
The other approach for avoiding trading addiction is to take regular breaks between sessions. These breaks will help you take time to reflect about other things.
It will also help you take a breather in the market. You can use these breaks to watch movies, travel, and hang out with your family and friends.
Have a good trading plan
A good trading plan or strategy will help you be a more successful trader. It will also be important in helping you avoid addiction.
The key parts of the trading plan or strategy are risk management, finding the most useful trading approach, and using price action analysis in trading.
There are other ways to avoid trading addiction. You can talk to a mentor who has been in the industry for a long time. The mentor will guide you to become a better day trader and avoid common mistakes. Also, you should focus on quality time management and diversify your trades.
What are the other signs of day trading addiction?
Some of the other signs that you are addicted are when you find yourself trading after making too many losses, when you trade compulsively, and when you find yourself hiding your trading behavior from your loved ones.
What should I do if I have a trading addiction?
The first thing in all this is to accept that you have a problem. After doing that, you should start working to handle the challenge. If the addiction continues, the next approach is to talk to an expert. You can do that by visiting a psychologist or using online therapy platforms like BetterHelp. Reading books can also help you.
Why do people get addicted?
There are many reasons why people get addicted to trading. For example, there is peer pressure, the desire to make money and make a fortune, stress, and overconfidence bias.
External useful resources
- 10 myths about day trading addition – Family Addiction Specialist