In This Episode
- Learn the basic functions of the brain that lead to addiction
- How to use rewards to change your mindset
- Why trading is a great profession
Can Trading be Addictive?
Some people can get addicted to the highs and lows of trading, just like with gambling. So in this episode, we talk about how to recognize if you have this issue and how to actually turn that into something productive.
Many people get down on themselves because of what they perceive to be addiction. While that could certainly be the case, there could be other ways to look at it. Listen to this episode to find out more.
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Read the Transcript:
Hugh: Hi, Walter. Everybody has some sort of addiction in some small or big way I think. How do we harness that and like to turn it in a different direction or in a more positive direction instead of a negative direction? What do you think about that?
Walter: That is really a good point. So, you kind of see that with people who are addicted to eating when they get depressed or sad. And then they end up getting addicted to exercise or something like that. I think what you want to do is to think about, break down the chemical thing that is happening at a basic level.
Super basic. I am not a neuroscientist but I know just enough to be dangerous. I’m married to someone who knows a lot about the brain. So let us talk about this. When you do something that you are addicted to, what happens in the brain?
It does not matter if it is like sex or food or danger like you are into doing dangerous things like skydive, surf big waves or hunt crocodiles or whatever. Something that is super crazy like rock climbing without a rope. Whatever that is called, free climbing or something, stuff like that.
What happens in the brain is, basically you get a flood — or drugs–. You get a flood of the happy chemicals, right? You think you are really happy. So what happens overtime is you kind of get used to that. You build up a tolerance. So you’ve got to do more drugs. You’ve got to do scarier rock climbs. You have to surf bigger waves to kind of get into that same level.
If you know that you want out of that, you could do a twelve-step program. Those are pretty popular. They have a pretty good track record. If you do not want to do that, you could shift your focus into something that you want to be really vigilant about.
So with trading, you could just shift over. Let’s say, you really want to start following your rules in trading. You are just like a random gambler. You see some tips. You read an article on FXStreet or whatever. You see a newer video and you say, “Hugh likes bitcoin so I am going to go in on bitcoin” or whatever. You are just like all over the map.
What you can do now is just focus on this specific idea of rewarding yourself, of giving that flood of happy chemicals in your brain when you do the right thing. So what you do is you reward yourself for following your trading rules. That is really a good way to shift on and it worked with anything.
You would reward yourself for sticking to your diet. So what do you like to do? Well, you like to eat. What do you like to do? How do you want to reward yourself for sticking to your diet? Maybe you go out and buy yourself a new dress or a new set of golf clubs.
You are trying to move the focus from, away from what you’ve used your crunch to what you want. To what you’ve wanted to change to. So like procrastination. It’s a big one. A lot of people procrastinate. What you can do then is to just set up this reward system.
Say, “Look, if I do not procrastinate on this thing that I am supposed to do everyday five days out of the next seven, I will buy myself a movie” or whatever. I didn’t even know if you could go to the movies anymore. We can be over here. I do not know if they are open over there. I do not know what is going on.
Something like that or buy myself a book or a trading course or take myself to frozen yogurt. If I follow my diet Monday through Saturday then on Sunday I can go and get a frozen yogurt. Something like that. Just treat myself.
So you kind of want to make it into a game. Where you win the game by doing the right thing because we fall into those habits. The other thing is to have someone to be accountable to. That is why the twelve-step stuff works because you get people who are like your sponsor or whatever and then you kind of like you have to faze up to your sponsor and say, “Man, I had a drink yesterday” or whatever.
So, having someone that you are accountable to every week to talk to and say, “This is what I did. This is what I am working on. It went well three out of four days” or whatever. That is how I look at it. Do you have any ideas on that?
Hugh: I think that it is obviously important to have a little bit of dopamine hit, I guess. When you do something right. I think there’s also a lot of value in reviewing what you are doing and finding joy in the process itself.
So are you maybe trading in a way that is too stressful for you? I find this a lot. Like people they want to day trade. They have this idea of like sexy day trading making two thousand dollars for a day or whatever. But in reality, most people would probably do better just swing trading.
So I think just reviewing the process, do you find the process fine? Is putting out your journal could be easier or could it be more fun? I think that is a really good way to entice yourself to keep on going because you find the process enjoyable or maybe you have a trading strategy that has a small stop loss and a big winner.
Some people like that. Some people find that fun or some people like having some consistent winners that are just maybe one-hour and some people enjoy that. I think there’s something to look at there also.
Walter: Yeah, I think you bring up a really good point about the process. One of the things I’ve learned at the last FXStreet Conference they had in Barcelona. I don’t remember if it was 2013 or maybe, something. Maybe 2011, it was a while ago.
Anyway, one thing I was thinking about there, really there’s a lot of great traders. It was really a cool conference. I wish they still had it because a lot of the Presenters there would come back like in the future years. It was kind of small and it was really good.
Anyway, one of the things I was thinking about there was this idea of embracing the unknown. I was thinking about how as traders, that’s our whole job and it was so different to everyone else. They go to work on the same road. They walk in the same door. They say hi to the same people. They sit down on the same desk. They do all the stuff every single day and it’s so boring. The same meetings on Mondays.
Whereas traders, it is so cool that we actually have these different things. I might not take a trade today. Maybe I will take a trade today. Maybe my other trades I took last week are going to be losers today or maybe they are going to cash out. We get paid for uncertainty.
Whereas some people know when they’re going to get that paycheck every month, every two weeks or whatever it is. We do not know that like you are saying. Part of the process I believe as traders is that we get to embrace the uncertainty.
We get to say, “You know what? I do not know what is going to happen with this trade. I really don’t. I know I have about forty-six point five percent chance that it’ll work out. Which means of course, I have a fifty-three percent chance it is not going to work out but it is kind of cool knowing that I’ve put it in. It is on the platform. We’re going to see what happens now. I’m either going to get paid for this or I’m not.”
A lot of people do not want to do that. That is why your job is to be a trader, that is why you get this job because a lot of people do not want to do it. So I think that the idea of looking at uncertainty is a good thing. We try so hard to make the uncertain, certain. We’ll add another indicator or we’ll do another back test.
We’re trying something to make it so that we feel like we have more control. We won’t take this trade or we will take that signal and yet it still is just a roll of the dice. You just don’t know what is going to happen on any given trade. We really don’t.
If anyone doubts that, you can do that in your journal. Write down how likely it is to work out and see if you are right. See if you actually have the ability to tell if those trades are more likely to work out than the others.
Give it a scale. Give it a one to ten rating and see. That is really a good way because people trick themselves into thinking that they can tell the best trades. You just don’t usually know.
Hugh: I think that is really the cracks of trading. Like if you could find joy in that uncertainty then I think that is the best start, the best place to start, right?
Walter: Yeah, absolutely. Just let it go. It is like when you teach a kid how to ride a bike and you push him for the first time. They do not have the training wheels and they’re kind of wobbly you know. That is how it feels every time with a trader.
It’s kind of like pushing it off and just let’s see what this will cause you know. We could skin our knees or we could have like, “Yeah! I did it!” You just do not know. It is still fun to win. I always say things like trading is boring.
Hugh: Hey there! I hope you find this episode useful. I just want to let you know that Walter and I give away something valuable every month that helps traders improve their skills. You can enter to win by simply leaving an iTunes review and leaving a comment on our YouTube videos.
At the end of each month, we'll look at the comments and reviews from the month and we'll pick a winner at random. Each comment and each review counts for one entry during the month that it's pitted.
So, if you're interested in that, be sure to enter after this podcast is over. Alright, back to the episode.
Walter: And that’s just because the process of it is boring. The process of fishing out where I should take a trade next and that sort of thing. That is pretty boring and to me kind of like pretty obvious. I don’t try to convince myself anymore when I look at the charts. Like, I should probably take this trade because of this or that. I usually know straight away.
I look at the chart and I go, “Yup!” within seconds. In two seconds I can tell it if I look at the chart. It is usually really obvious. So in a way, it is boring but it still is exciting because you do not know the outcome.
The uncertainty that’s what you get paid for. People do not want that. People want certainty. People want a paycheck and so that is what’s cool about trading. We get paid for taking on risks where other people won’t and so enjoy it.
Hugh: I think it is also a skill that not too many people can master. So when you do have that successful trade I think it is a confirmation that you are doing the right thing also.
Walter: Yeah, it is very rewarding. Putting all the time that you’ve put in, putting all those years, all those back tests and getting to the point where you know you can make money is very, like someone cannot take that away from you.
It is like having a degree or something. You did the work, you’ve got it and so now you are there. It’s really kind of fun having that and knowing that you know, you are there. It does not mean that you are not going to have a losing streak. It just means that you did it.
It’s really a nice sense of accomplishment and most traders don’t. They never get there which is sad. They never get there. They are always looking for something better. They never really lock into anything. It is a bit sad really.
Hugh: I guess, it is kind of like farming. You could think about it that way. If you are a farmer, you know how to grow some food, you will always have food. You do not go hungry and it is similar to trading I think.
Walter: Or hunting, exactly.
Hugh: Alright, cool. Thanks, Walter.
Walter: See you!
Hugh: All the information in this podcast is for educational and informational purposes only and is not trading or investment advice.
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