Shrink Rap: Are You Addicted to Trading?

Steven Hendlin

Editor's note: This will be the final column of Shrink Rap to be published to TheStreet.com. The column will continue to appear every Wednesday on RealMoney.com, our premium, subscription site. Click here for a free trial!

Recognizing a Problem

Dr. Hendlin: From 1965 to 1985, I was a successful investor/trader. I was a trader of the monthly variety. In 1986 I got addicted to my own adrenaline daytrading OEX options. Since then I have just been an investor and occasionally (once every 3 months) making one 3- to 7-day trade. I would like to do more, but the adrenaline overpowers reason in short order. I have always assumed there is no real solution to stopping the adrenaline. True or false?

-- B.G.

Shrink Rap: For you, true. Most professional money managers and serious active traders are able to control their adrenaline flow so that it doesn't become the main motivator or reinforcer for frequent trading. As you have learned, you are not one of them. And it is not likely you ever will be.

Research suggests there are certain predisposing genetic factors, as well as individual personality factors, that determine how susceptible one is to becoming addicted to anything. Every trader manages his or her surges of adrenaline according to these factors. Adrenaline fuels emotion, and emotion interrupts clear decision-making and execution.

This means that certain people are going to have a much tougher time regulating these surges than others. For example, what I call the gambling/impulsive type of trader, is more susceptible to becoming addicted than are other types of traders.

Your ability to invest responsibly without getting sucked back into active trading after you became addicted indicate that you have gained control. Be grateful you recognized and overcame your addiction. In your situation, it would be wise to let sleeping adrenaline-addicted dogs lie.

Signs of Trading Addiction

Here are signs that may serve as guidelines as to when traders have gone too far. These signs have been altered slightly from the signs mental health professionals use to determine when gambling has become addictive.

A trader may be addicted to trading if any five of the following are true:

1. Preoccupied with trading (reliving past trading experiences, planning the next trading experience or thinking of ways to get money with which to trade). This, of course, should be distinguished from positive enthusiasm and anticipation.
2. Needs to trade with increasing amounts of money and in increasing numbers of shares to achieve the desired excitement.
3. Has repeated unsuccessful attempts to control, cut back, or stop trading (for example, chases losses when heavily in debt, borrowing on margin).
4. Is restless or irritable when attempting to cut down or stop trading.
5. Takes trading losses out on family and friends through outbursts of anger, irritation, or physical violence.
6. Becomes depressed for days on end after a series of trading losses. Unable to emotionally recover from bad days.
7. Trades as a way of escaping from problems or of relieving a depressed mood.
8. Lies to family members or others to conceal the extent of involvement with trading (for example, how much in debt due to trading on margin).
9. Has committed illegal acts such as forgery, fraud, theft, or embezzlement to finance trading.
10. Has jeopardized or lost a significant relationship, job or education or career opportunity because of trading.
11. Relies on others to provide money to relieve a desperate financial situation caused by trading.

If you think you may be addicted to trading, consult a licensed psychololgist who deals with addictions.

Here Come the Sheep

Dr. Hendlin, TV pundits often seem to act like fickle sheep. Why is media "hype" given so much weight in our minds vs. factual data?

-- S.W.

Shrink Rap: As the market was well into its nose-dive from the lofty highs of the go-go days, here is how RealMoney.com colleague Martha Smilgis described the role of the CNBC anchors in a recent column for The San Francisco Examiner:

What we have here is a colorful cast of television characters with distinctive personalities and entertaining cross chat. What we don't have is a group of serious business journalists ... We foolish viewers and equally naive investors attributed some type of critical skill to their performance. What a mistake! The CNBC bubbleheads are simply unquestioning promoters who created a friendly platform for every con artist analyst to come aboard and hawk his or her bogus stock estimates.

No deep psychological analysis required here: In short, we are lazy and we want authorities to give us the answers. The TV pundits are simply fulfilling that desire.

If we can rely on analysts and trading "experts" to do research for us and then give us their picks, we are spared having to do the hard work of analyzing and interpreting the data ourselves. In addition, we are spared having to take responsibility, as we can always blame the expert when he or she is wrong.

Almost all information that analysts and pundits use to determine their picks is readily available online to the individual investor willing to find it. But most of us simply can't or won't take the time. Or make the effort. Even when we do take the time and effort, we often don't trust our ability to meaningfully interpret the data. Making sense of squiggly-lined chart patterns, reading dull and bloated financial reports, or rating the relative market value of economic sectors are not skills (or tolerances) one can learn overnight.

So we rely on professionals to give us the answers. As long as we understand the affiliations these people have that inform their opinions, it is sensible to hear what they have to say. But it makes even more sense to follow their research with our own before committing real money. In the end, we must all be willing to assume personal responsibility for our investment choices and their consequences.

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Shrink Rap appears every Wednesday on RealMoney.com. Topics for future "Shrink Rap" forums may include dealing with the pressures of trading; obsessive thinking; trading addiction; dealing with losses; perfectionist thinking; trader's block; improving concentration; neutralizing fear and greed; balancing isolation and information overload; and anything else that may be of concern to you. "Shrink Rap" appears on RealMoney.com every Wednesday. Be sure to send your queries to Dr. Hendlin at Steven.Hendlin@TheStreet.com,

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