My answer to How do I overcome an addiction to forex trading?
Answer by Laurent Bernut:
Addiction to Forex trading has all the symptoms of alcohol or drug addiction. It is deceivingly easy. It is accessible. It does not require large amount of capital. It can be done anywhere on a smart phone. It gives immediate feedback.
welcome to addictive personnalities. The best thing You can do is attend Alcoholic anonymous and substitute everything that mentions alcohol with Forex
In fact, I cannot recommend their program highly enough to overcome over-trading.
A. How the brain works:
The reason You want to stop is most likely because You are not about to buy that private jet You saw on the advertisement.
Here is the interesting distinction between gambling addicts and recreational players.
1. Illusion of success
Forex brokers do an exceptional job at giving the illusion of success. Anyone can open an account with almost no capital and start commanding vast amounts of money. It is so easy, yet it is anything but simple.
This is a form of video games, except this time You can make money. The worst thing that can happen is that You make money initially. The best outcome is You lose and wisely conclude it is not for You.
So, You probably made a bit of money, got hooked and then started losing
1, The curse of near miss
The brain does not process information the same way. Three outcomes:
- Win: addicts and civilians process wins the same way, that is they attribute it to their skills (believe it or not, we attribute wins to our skills even in roulette)
- Clear loss: addicts and civilians process clear losses the exact same way
- Near miss: civilians process near misses as losses, the same way a clear loss is processed. Addicts process near-misses as if they were wins: it activates the dopamine reward circuit (Nucleus Accumbens NaC)
2. The dopamine reward circuit and “your brain on porn”
The meso-limbic circuitry is also referred to as the dopamine reward circuit. At its core, the reward circuit is a primitive guide that will psuh You away from pain and toward pleasure. It had a vital role for our ancestors: eat the wrong berry and You will be someone else’s dinner. Fats forward tot he modern world, this is how addicitons are formed: NaC gets activated, releases dopamine and memories are formed.
The best explanation of this cycle is in this medical video. I understand people would be put off, but everyone should watch this video, especially if You are a parent: Your brain on porn
3. Beginner’s luck neurosciences and statistics
From the above paragraph, it is easy to understand how people can be driven to play again and again. If they win, they will continue. If they lose a little bit, they will play again to make it back and if they lose, they will attribute to bad luck. There is no losing combination. You are bound to play until You throw the towel
Now, if You are a recreational trader, near-misses will be magnified losses and You are likely to trade more conservatively as a result. In the end, You will make money and everyone will call t beginner’s luck.
No, your brain responded to objective (loss) and subjective (fear of loss) stimuli by adequately reducing risk, which increased your trading edge (gain expectancy)
On the other hand, if You are a junkie, You will overtrade, lose and revenge trade to make it back, which will invariably dig the hole a bit further.
The subtle statistical difference is in the treatment of the near miss. For example, imagine payoff equals loss. If the objective win rate is 48% but You think You win half the time, what do You think happens in the end ?
You are not as good as You think You are, You are just as good as your trading edge and here is the formula:
Trading edge = Win% *Avg Win% – Loss% * Avg Loss%
B. How to cure addiction
They have an impressive track record. Their method works.
The habit loop
Once an alcoholic, always an alcoholic. Neural pathways of addictions are almost permanent.The brain loves habits. More than 45% of daily activities (a bit more if You work for CNBC) are spent in automatic unconscious mode
Mechanism is simple:
The habit loop is unlikely to change. Whenever the stimulus is triggered, the urge will itch, and the loop will be activated. Rings a (Pavlovian) bell ?
The brain craves its reward and, despite all your best efforts, it will get it. How many people who You know who can’t quit smoking ?
So, the trick is to reverse engineer the habit loop. Substitute the bad routine with a good one, and gradually habits will form. The key here is to identify the cue that triggers the routine.
Whenever the cue happens, don’t fight it, use it. Example, I used to smoke 1 cigarette around 10 am and 1 around 3:15 pm after market close. I changed my routine to inserting two 5 mn Calm.com meditations on my iPhone.
Cold turkey and study
Personally, I would not hire someone who has a tendency to over-trade. This is usually symptomatic of deeper issues: perfectionism, dissonant self-esteem, poor discipline, addictive personality etc.
It does not mean that compulsive traders don’t make it. It means they have a few more demons than regular people.
There is one silver ling about being compulsive. Those traders are more attune to risk. It is easier to teach them stuff like gain expectancy. BTW, go to my website and download your free copy of trading edge visualiser (http://alphasecurecapita
). The intellectual part comes naturally, that’s the mental part that they need to keep in tight check.
It is hard to fight an addiction, but those who are admirable
Use this tool, it is 100% free and it will help You visualise, analyse and then overcome your trading addiction