Understanding Psychology and Forex Trading Addiction

There’s a lot of debate surrounding the nature of addiction. Psychology Today defines addiction as:

“A condition that results when a person ingests a substance (e.g., alcohol, cocaine, nicotine) or engages in an activity (e.g., gambling, sex, shopping) that can be pleasurable but the continued use/act of which becomes compulsive and interferes with ordinary life responsibilities, such as work, relationships, or health.”

It goes on to note, “users may not be aware that their behaviour is out of control and causing problems for themselves and others”. It also says that the word ‘addiction’ can be used in different ways and that experts debate whether addiction is a disease or a mental illness and whether addiction and dependency are the same things.

These questions are not likely to be answered soon but, going by Psychology Today’s definition, some traders can certainly become addicted to the act of trading just as they can other behaviours like gambling, sex and shopping.

There are various psychological factors involved but trading can be an extremely challenging and exciting activity. Making a successful trade stimulates the reward centres of the brain. It feels good, it feels exciting and this feeling can sometimes be more important than the actual sums being risked and won (or lost).

Spotting the signs

Chasing after this feeling of reward and pleasure can lead to addiction but it does not always happen all at once. As with other types of addiction, it generally builds slowly and, as Psychology Today pointed out, those afflicted might not always be aware that their behaviour is out of control and causing problems for themselves and others.

One thing to look out for is whether your trading is interfering with your ordinary schedule and responsibilities. Most traders are not in the position to be able to trade on a full-time basis and if trading starts to impinge on a regular income stream this can certainly be a major problem. If you’re chasing 24-hour trading as one market closes and another opens this could also have an impact on family and other relationships, as well as being detrimental to your health.

Even if you are in the enviable position of being able to trade full-time, a preoccupation with the process at the expense of everything else in your life is not very healthy. Constantly checking trades and fretting about positions even when you’re away from the screens can also be counter-productive.

Over-trading

An addiction to trading can lead to over-trading, whether this is a long-term or temporary behaviour. Over-trading generally means opening trades where you otherwise wouldn’t. If you let your rules on opening signals slide once, they are likely to keep on relaxing until you are trading virtually on hunches or whims alone. It can be particularly easy to slide into over-trading behaviour after a losing streak or when your trading account has been depleted.

Forex trading can be a very rewarding and profitable activity but it’s always worth being on guard against sliding into compulsive or self-destructive behaviour.