The COVID-19 pandemic has popularized day trading as many individuals began to engage in it as a secondary source of income. This instant boom in retail participation in the financial markets has also been facilitated by the rise of numerous online broker companies and their offering of an instant demat account.
Trading is an exciting, riveting, and addictive activity. Traders addicted to day trading began to take unnecessary and risky trades just for its thrill. This vice can cost a trader both socially and economically. In this article, we will see what trading is, why day trading is addictive, 10 symptoms of day trading addiction, and how to overcome it.
What is trading?
While trading and investing have the same goal of generating profit from the market. They differ in the way they pursue their goals. Investing has a long-time horizon and undertake to grow an individual’s wealth by minimizing the risks.
On the other hand, trading executes to benefit from mispricing in the market. It has a short-time horizon and has the following classification based on its timeframes:
- Scalping trades excite within minutes or seconds of entering the trade.
- Day trades are entered and exited on the same day and do not involve holding positions overnight.
- Swing trading has a timeframe of several days, sometimes weeks.
- Position trades are long-term in nature. You need to hold these trades for several months or years.
Why is day trading addictive?
When a trader makes a large profit, dopamine is released by the brain. This is a “feel-good” neurotransmitter known as the brain’s reward system. Gradually, a trader becomes dependent on this type of stimulation and the subsequent dopamine release. This can induce addiction as day traders need to execute an increasing number of trades to get the same level of joy, excitement, and pleasure.
The psychological and genetic factors of the trader also contribute to the risk of the trader developing a day trading addiction. For instance, underlying genetic and mental health issues may make traders prone to developing day trading addiction.
10 symptoms of day trading addiction:
Here are 10 symptoms to determine whether you or someone you know have a day-trading addiction:
- Taking more and more risks without any prior planning or strategy.
- Constantly observing the market and becoming obsessive with researching financial instruments and trading.
- Trading consumes a significant portion of the trader’s day. This results in the trader losing interest in activities that excites them earlier.
- A compulsion to trade or engage in trading-related activities.
- Feeling irritated and restless when unable to trade.
- Revenge trading to recover losses suffered. This usually ends up in more losses.
- Trading to induce euphoria and to experience an adrenaline rush.
- Unsuccessful attempts to reduce time on trading and related activities.
- Continue to trade despite having suffered adverse financial, relationships, and mental consequences.
- Suicidal thoughts due to financial losses.
How to overcome day trading addiction?
Recognizing that you have an addiction is the first and initial step in overcoming any addiction. Here are some ways that a trader can overcome trading addiction:
- Reaching out and seeking the support of friends and family.
- Hiring a financial advisor or a finance professional to take over the trader’s investment account.
- Uninstalling “trading apps” from the trader’s devices.
- Turning off and not following any trading-related news and social media sites.
- Seeking out a professional counselor or therapist.
Power of Attorney (POA)
Power of Attorney (POA) in the stock market is a document that confers a broker with the right to handle client demat securities as the legal authority to act on your behalf. It is a document signed between a stockbroker and a trader. When a trader opens demat accounts with a stockbroker, brokers collect the POA.
Day trading addiction is a serious issue, and therefore, you should take immediate actions to treat and cure this addiction. You should trade prudently and monitor your trading activities to ensure that you are not and do not fall into the trap of day trading addiction.
To avoid day trading addiction, follow these three steps:
- Avoid trading impulsively.
- Make a detailed trading plan and follow it.
- Avoid being emotional, investing in the market and revenge trading.
Read also:- Position Trading Strategy