What Is Revenge Trading? And Methods To Overcome It

What Is Revenge Trading And Methods To Overcome It

Revenge trading occurs when a trader enters a new position right after a loss in an attempt to make money back immediately.

Anger, greed, and the fear of being wrong cause a trader to act irrationally following a loss.

Because of these emotions, a trader will likely break their strategies rules i.e. the trade does not have an edge and will probably end up as a loss.

Due to the trader’s frustration towards the market, they might even oversize the position, leading to more significant damage. 

Everyone is guilty of revenge trading at least once, but allowing it to reoccur frequently is not an option if you want to become a consistently profitable trader.

How To Stop Revenge Trading

Try all of these suggestions if revenge trading is hurting your profitability:

1. Analyze losses

Before jumping straight into another trade, observe your losses to find a possible fault. Here are some questions to ask yourself:

  • Did market conditions suit my approach?
  • Was there a healthy amount of volatility?
  • Did I put my stop loss at the correct price?

 

By questioning your trading losses, you can learn how to manage them.

2. Read your strategy rules

We all aim to execute trading strategies with complete objectivity, but our emotions often get in the way. Therefore the key is limiting the impact feelings can have on our decision-making and execution.

By reading through your rules before opening a position, you give yourself a clear idea of what conditions need to be met before you can place a trade, preventing the desire to get revenge on the market.

3. Manage expectations

When you are about to open a new trade, remind yourself that it is not guaranteed to be a winner. Why do I say that?

Because the expectation of a win leads to frustration if you are wrong, this built-up anger after losing can fuel the temptation to revenge trade.

Avoiding that problem is easy enough – Manage your expectations, tell yourself, “this trade could be a loser, and I am ok with that.” You have already mentally prepared for the worst possible outcome by saying something as simple as that.

As you become more experienced, the easier it is to accept losing trades.

4. Take a break from the market

If you are frustrated at the market after a loss or a series of losses, it is time to take a break from trading.

When emotions are running high, the best option is to protect your trading capital.

Stepping away buys time to cool down. You can return to the market with a clear mind, ready to execute a trading plan.

5. Be aware of your triggers

Take note each time you fall victim to a psychological error. Eventually, you will see patterns in the errors you make and identify what causes them.

When these triggers occur again, you will be more self-aware and can stop any potential mistake.

A great way to keep track of your mental framework, and the impact on trading results, is to keep a trading journal.

Conclusion

Many traders resent the market when they lose. They hold a grudge and want to get payback for what was done to them.

All the people who hold this pointless rage are unprofitable, so don’t be one of them.

Markets treat everyone equally and only reward or punish a person’s trading ability.

Your strategy and ability to execute it determines your results. You are 100% in control of your destiny as a trader over the long term.

The market is your best friend.

Revenge Trading FAQ

Revenge trading occurs when a trader enters a new position right after a loss in an attempt to make money back immediately.

  1. Analyze losses to find potential causes.
  2. Read your trading rules to remain objective during challenging periods.
  3. Manage expectations by remembering some trades will lose money.
  4. Protect your capital and step away from the market if your emotions are running high.
  5. Be aware of triggers that lead to personal mistakes.
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Guy Seynaeve

Guy Seynaeve

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