Revenge trading is one of the most common problems many traders face. Some deal with it quickly, others not so much. This post explores revenge trading and provides some tips and means on how to deal with it. Sounds good? Please read on.
What is Revenge Trading?
Revenge trading happens when traders try to recover from a losing trade or trades. It’s a negative response / reaction to a losing trade / trades without taking a pause to think what’s actually happening – taking impulsive trades.
Revenge trading can take the trader into a negative, downward spiral, digging him / herself into a whole that’s harder and harder to get out of. In this state, the trader is not thinking rationally and abandons his / her strategy, rules and risk management.
What Causes It?
At the root of revenge trading is our inability to accept that we are wrong; to accept losses. In normal life, being told that we are wrong about something doesn’t sit well with most of us. We always have the tendency to want to push back – some of us more so than others. Trading is no different. It’s just that now it is the market that’s telling us we are wrong, causing us to want to push back.
Losses also play on our emotions. In fact, they heighten negative emotions like fear, greed, anger, frustration and shame. How so?
- Fear of not being able to make rent, take your partner on a date, having to stay in a bad job with a bad boss, etc. Then there are all the dreams that might not become a reality. All these things are encapsulated in a losing trade. You might not know it at the time, but when you are revenge trading, you are fighting these fears.
- It simple, greed will make you want to make back the money that you lost.
- How many times have you done something out of anger or frustration and came to regret it later? This happens because you don’t think rationally. Losses angers and frustrates, and causes you to make bad decisions like revenge trading.
- At the start of your trading journey you tell everyone that you’re going to be wealthy. That you found something that you can do from your laptop / phone, work a couple of hours a day and become filthy rich. Then you start taking losses. Now you can either swallow your shame and admit that trading might not be so easy, or you can try and recoup our losses, i.e. revenge trade.
The Impact of Revenge Trading:
When you revenge trade there is the real risk of you blowing your trading account – so there’s definitely negative financial consequences.
It sets you back, no doubt. This will be a hindrance on your path to trading success.
It can also cause stress and regret. This could be from financial loss as stated above, or from a host of other factors. Nobody wants high levels of stress or live in regret.
When you revenge trade, you reinforce bad habits. The more you do it, the more difficult it is to get back on the right path. When you revenge trade and the outcome is you recouping your losses, it becomes even more dangerous because now the bad behavior was rewarded with a positive outcome – you will be more inclined to do the same in the future.
Revenge trading will knock your confidence. It will make you question your ability to become a successful trader. It will make you question and trust your trading strategy.
How to Deal with It:
First off, if you want to overcome revenge trading, you have to admit that you are struggling with it. This might sound simple, but many traders make excuses for it. There can’t be any progress while you are making excuses.
Secondly, once you’ve decided that you need to do some work to overcome your revenge trading, you have to come up with a plan on how to deal with it.
And thirdly, once you have the plan, you have to commit to it.
With that out the way, the following are some useful tips on how to deal with revenge trading:
- Every trader should have a strategy with an edge. Before placing a trade, you should write out a plan according to your strategy for that particular trade, i.e. entry, stop loss, price target, risk and how to manage it. Commit to place a trade only after you’ve written a plan .
- Learn to accept that there will always be losses when it comes to trading. Constantly remind yourself that a loss is just one trade in a series of trades. Cultivate a long-term mindset.
- Only risk what you are comfortable losing on a trade. Set a max loss limit for what you are willing to lose in a day, week or month – this will depend on your trading style.
- Journal all your trades. If you do it long enough, you’ll come to find (by reviewing), that it’s possible to be profitable even with losing trades. You’ll also realize that you can improve your performance tremendously by eliminating your mistakes. This will boost your confidence.
- Revenge trading is impulsive trading. To break this impulsivity, it’s best to step away from your screen every now and then. This breaks the cycle and gives you a chance to look at your trading objectively. Find ways to remind yourself to step away from your trading on a regular basis.
- Learn what triggers your revenge trading. An obvious one is the chance of you revenge trading after taking a loss. Others are when strong feelings and emotions like anger, frustration and shame comes up. Becoming more self aware helps; mindfulness can help here. Make it a habit to check in on yourself regularly.
Finally:
With the above in mind, find what works for you and your style of trading. Come up with a plan and commit to do the required work needed to stop you from revenge trading.
Thanks so much for reading. I hope you found this post useful. All the best with your trading.
Thanks and Regards,
Trading SOS SOS
