The following article aims to provide:
- Information on how addiction to trading can affect your trading decisions
- The symptoms of addiction to trading, and the way to reduce spontaneous or unjustified trades
If you are or have been addicted to trading in the past, it is not necessarily your fault as a person, or as a trader. Even despite some genetic predispositions that can be inherited, or some attitudes and personality characteristics that can be acquired during someones life, it is still some kind of a fundamental process of the feeble human brain to react to random variable rewards with an addiction. It is commonly seen in gambling, gaming, and many other activities including trading, and its severity greatly ranges between different people. We are not any kind of experts in the field and quite possibly you know much more than we do as far as the science behind it is concerned. But regardless of how or why some form of addiction to trading might develop it is a very real thing and the vast majority of traders go through this stage sooner or later, at least for a while, and usually without even realizing it or how much it affects them. So it is best to be aware of it and to know how it can affect your trades and your performance. If you are truly trading for the income stream or want to achieve that in the future, then you need to be able to immediately recognize those moments when your finger wants to click the trade button on your platform even when there is absolutely no valid reason for doing so.
But before we continue, what could be considered to be a valid reason for entering a trade? If you are trading with the sole purpose of increasing your wealth then the only valid reason for entering into a trade is because you know how to increase your wealth in a consistent and reliable manner, most likely by making very specific kind of trades that fulfill specific criteria. And if you have managed to achieve that when facing something as uncertain as trading where any individual trade might fail for any unforeseen reason, then you probably already know that the only reason your wealth keeps gradually increasing in the long run is because you have a consistent "edge" over your competition and all your trades are based on it. This "edge" helps you stack the probabilities of each trade on your side, and so regardless of some individual trades that will unavoidably fail, your winnings keep exceeding your loses over any statistically meaningful sample of trades.
If you are trading with the purpose of increasing your wealth then the only valid reason for entering into a trade is because you know how to increase your wealth in a consistent and reliable manner, most likely by making very specific kind of trades that fulfill specific criteria
In Supply and Demand trading our edge consists of identifying areas that are capable of producing a predictable Supply/Demand imbalance, and then using it so as to boost our entries while protecting our stops, thus achieving a lower-risk higher-reward trade. This means that our buy orders for an entry are placed right above a valid Demand level and our sell orders for an entry placed right below a valid Supply level, effectively providing us with a low-risk entry while also placing a virtual wall between current price and our stop orders. We are effectively taking the other side of a trade of a novice trader who is buying right below a Supply level or selling just above a Demand level for any kind of irrelevant or invalid reason. The novice trader has probabilities heavily stacked against his high-risk trade, and ends up filling our low-risk entry order at a level where there is very likely to be an imbalance between Supply/Demand and consequently price will react to the level in our favor in a predictable way that is statistically meaningful over a sample of trades.
But how is this related to any kind of addiction to trading? An oversimplified, yet correct way to view this, is to realize that any trade which does not truly fulfill the criteria of your trading "edge" has no valid reason to ever occur. If you find yourself unable to stay out of the market until the right opportunity presents itself then this will cause you to enter all sorts of low-probability trades, and despite the occasional win (which can happen even if you trade by rolling dice), your account will keep shrinking in the long run. So you don't only need to know when to stay out of the market but you also have to be able to do that. As Supply and Demand traders we are always waiting for price to come to us near one of our pre-identified and pre-evaluated levels, in order for us to enter a trade according to our own rules and obtain a higher-probability setup for our trade. We do not chase after any price activity that has already happened, and we do not enter trades for irrelevant reasons at arbitrary places. Any trade we choose to enter provides above-average, stacked probabilities, to the best of our knowledge and abilities, and that is the only reason we get paid.
Any trade which does not truly fulfill the criteria of your trading "edge" has no valid reason to ever occur. Spontaneous and otherwise unjustified trades can frequently be traced back to addiction-driven behaviors
But for many traders it is more difficult to stay out of the market until the opportunity presents itself (assuming that someone can identify a true opportunity), than it is to endure what eventually proves to be a painful trade. It is probably even worse when a trader has some kind of valid knowledge about how the markets work but still ends up clicking the button at all the unfavorable moments. These spontaneous and otherwise unjustified trades can frequently be traced back to addiction-driven behaviors. The random variable rewards inherent to trading coupled with the adrenaline rush most traders experience, are more than enough to slowly shape someones attitude and actions. And any such addiction-driven behaviors, like the feeling of "missing the action or the trade", are even exaggerated if combined with misbeliefs about how often market opportunities appear. But consider that even if we were to suppose that market opportunities are not as frequent as we would like, what would be the reason to enter into any other trade that is "not an opportunity"?
Consider that even if we were to suppose that market opportunities are not as frequent as we would like, what would be the reason to enter into any other trade that is "not an opportunity"?
An opportunity should be defined by your trading "edge" and you should be able to describe it even before it occurs. This means that you know exactly what you are looking for and how to use it. At the same time it also means that anything else that might try to trigger those spontaneous or unjustified trades should be immediately filtered out of your plans and actions. It might be a little hard sometimes, but it is definitely doable and it gets easier and easier as you start reaping the benefits. If you stick with it, eventually you will find yourself wondering how you allowed yourself in the past to engage in all those meaningless trades that did not have any valid reason to ever occur.
Another side of the addiction to be aware of, which is much more obscure but equally destructive, is that which is derived from a faulty belief system. Ideas or beliefs like "I have to get super rich by next month", or like "I have to cover my previous losses right now", are not only unfounded but can also take root and become dangerous if left unmonitored. They tend to increase any emotion (both negative and positive) and boost the adrenaline rush experienced in trading, both of which will feed an addiction-derived behavior and interfere with the state of mind required in trading. You have to realize that transforming yourself from a novice trader to a profitable trader takes some time and effort, whether you like it or not. Not accepting the fact will not make it go away and it will possibly cost you a part of your wealth on the way, which could have been avoided or at least minimized.
If you take a look at those who already possess the qualities you aim to achieve, you will realize that they have managed to exclude all intense emotion from their trading activities, and that all their trades conform to their trading "edge" and have a known and expected win ratio range, thus making any emotion related to any individual trade completely irrelevant. They keep their risked amount per trade to very tolerable levels, and they don't care that much which individual trade wins or losses because they see their trading "edge" providing a predictable win ratio over a meaningful sample of trades. The only thing they have to do is wait for the predefined opportunities, take action according to plan, and let mathematics and statistics do their thing over a period of time, with no intense emotion related to any individual trade. Without intense emotion or any sort of adrenaline rush and with all trades conforming to a real trading "edge" for predictable probabilities, you will find that spontaneous, irrelevant, and invalid low-probability trades start to disappear.
Low-probability does NOT mean zero-probability. Low-probability trades simply mean a gradual destruction of your account, and even include enough occasional wins to keep you from quitting
So it is important to monitor your trading behavior. Ask yourself every time before a trade whether it is trully valid according to your trading edge, or is it derived from an emotional, and possibly addiction-driven state of mind. If it is not unquestionably clear that this trade conforms to your trading "edge" criteria as if you had described it before even seeing it, then you might be trying to persuade yourself to jump into a low probability trade which you are more likely to regret than not. And it is equally important to remember that any trade might end up winning even if you traded it by rolling dice, so if you find yourself regretting that you skipped some low-probability trades which ended up winning without you, make sure to remind yourself that low-probability does NOT mean zero-probability. Low-probability trades simply mean a gradual destruction of your account, and even include enough occasional wins to keep you from quitting. The opposite of that is the high-probability trading resulting in a gradual but quite consistent and pleasurable increase of your wealth. So it does not matter if some low-probability trades won without you or if some of your high-probability trades lost, it is all part of the cost of doing business. It only matters whether your trades belong to a low-probability category or to a high-probability one, and you can let maths do the rest for you.
If you find yourself unable to wait for the high-probability setups you have to ask yourself if this is because you are already used to the vast, unlimited availability of low-probability setups (which can be conjured out of thin air, anywhere, and for any invalid reason, especially in the fast-moving Forex market). The reason high-probability setups are less common is because they require multiple factors to align and coincide. And the reason they are high-probability setups is because these aligned factors are based on objective market principles, otherwise they would just be "less common" setups and not high-probability setups.
The reason we spend the time and effort to explain and examine the above in this article is firstly because consciously realizing, monitoring, and excluding any interfering trading behaviors is, for many people, a very important step towards profitability, especially after figuring out what your trading "edge" is and how to use it. Secondly, having the correct and unquestionable arguments to remind yourself whenever needed makes it much easier to adhere to your desired trading attitude against any emotion fluctuations, addiction-driven or spontaneous actions, and low-probability trades, at least until you start reaping the benefits and it becomes an integral, effortless part of your trading.