What is Revenge Trading? How to Overcome Revenge Trading


Even though many traders might not admit it, the majority of traders have experienced revenge trading because it is one of the most common trading mistakes at a certain stage during their trading careers.

You will learn about revenge trading in this post, along with its causes and methods for avoiding it in the future.

What is Revenge Trading?

When a trader incurs a significant loss, the natural and emotional reaction is to engage in revenge trading. After a significant loss, they immediately enter another trade without pausing to consider their next move or review their approach.

The goal is to bounce back quickly from the setback. It is believed that losses can be swiftly recovered by placing another trade that is anticipated to be profitable.

Markets, however, are difficult to predict, as you are already aware.  As a result, the trade that was anticipated to be profitable would likely end up being unprofitable.

To get even for a loss is an example of revenge trading, in which you deliberately force a trade. Typically, traders who engage in revenge trading were on a winning streak before a significant loss disrupted them.

Why Do Traders Engage In It?

This irrational behavior is driven by a variety of feelings, including wrath, fear, humiliation, and greed. All traders have probably experienced these feelings at some point during their trading careers. However, don’t think that only inexperienced traders are capable of revenge trading.

Even some experienced traders and professionals can fall victim to this practice. This further demonstrates the irrationality of engaging in revenge trading.

Coaches who have experience working with traders at varying skill levels may testify to the devastating nature of revenge trading.

Traders who engage in revenge trading often increase their stake in the next trade by a factor of three or more in the mistaken belief that they would soon reap a profit.

Anger and Greed

After a significant loss, a trader’s emotions of anger and greed may override logic, leading to an impulsive choice to initiate a trade.

However, the majority of the time the transaction will go against them, resulting in a greater loss for the trader.

Fear and Shame

Fear of admitting and accepting a loss, especially a large one, might be so severe for some traders that they would rather immediately place a revenge trade.

The desire to get past a loss might also be motivated by the anxiety of confronting friends, family, or coworkers who will learn of the loss. Saving face is a major motivator for many traders, especially if they are known for being successful traders who win the majority of their trades.

Ways to Prevent Revenge Trading That You Should Implement

Because of the negative effects it can have, stopping revenge trading is to everyone’s advantage. Here are the five most successful techniques to prevent revenge trading, as determined by various trading coaches and trading psychologists who have collaborated with thousands of traders.

Take a Break Temporarily

Taking a break from trading, even if just for a little while, is the ideal thing to do if you’ve recently suffered a loss, especially a large one because it will help you gain some perspective and get your emotions under control.

Take a break from trading for a day or two, completely cease trading, or if you absolutely need to, make one or two minor trades if you feel the need to stay involved in the market. In addition, you may want to reconsider making changes to your strategy for trading. During this time off, reconsider your trading strategy and make any necessary adjustments.

Conduct a Self-Evaluation

After taking some time away from trading, you should do an objective, emotion-free self-evaluation to determine the root causes of your loss and subsequent revenge trade.

Steenbarger, who wrote the book “The Psychology of Trading,” emphasized the importance of awareness for traders dealing with difficult situations like revenge trading.

Analyze the Market Conditions

To be successful in trading, one needs to have a solid awareness of the current market conditions. It’s possible that revenge trading methods might be more possible in an already unstable market. Traders should proceed with extreme caution while participating in trades in such markets.

Evaluate your Trading Strategy

Examining your own trading technique to see if it is suitable for the present market conditions is also vital. It will allow you to assess your trading strategy and make any necessary changes.

You’ll need some journalistic skills if you hope to make it as a trader. Always remember to record the Where, Why, and How of a trade when you execute it. Why did you choose to make this specific trade? In what context did you first consider this? How did you carry it out? Read some reviews about brokers

It’s possible (but not guaranteed) that you’ll learn anything useful about yourself by reviewing your trade history following a failed trade. If you messed up, at least you know what to do differently next time.

Make Adjustments

After you have completed all of your evaluations, you will be able to modify your trading approach or trading practices as needed. Once you’ve determined your trading’s strengths and shortcomings, it may be time to make some adjustments to your strategy.

How Can One Maintain Their Sense of Discipline When Trading?

Trading itself is challenging enough. You don’t need to make matters more difficult by engaging in the aggressive competition after a poor trade. If you do not know which way to choose, find a broker on this site – https://scambrokersreviews.com/

Without self-control, you put your finances in danger. Even the most cautious trader may increase their position size in response to revenge trading, hold onto a declining stock for too long, or rely on thin data to spot patterns or trends.

Trading demands a cool, analytical mindset, which is perhaps why algorithms are so adept at it. To trade successfully, you don’t have to be a robot, but you do need to be able to identify when your emotions start to get the better of you and take action to stop trading in retaliation.

One of the best things about trading is that you can sleep on a terrible day and try again the next morning. Don’t let your capital be harmed by your emotions.