Revenge trading is as serious as it sounds, and it is a habit that must be broken to excel in the market. Simply put, revenge trading is when a trader attempts to win back losses by entering a larger — and often riskier — trade. This type of trading is driven by fear and frustration, and it can have devastating consequences.
Fortunately, overcoming revenge trading is more manageable than one might think. It’s all about understanding one’s inner emotions and cultivating the right mindset for success.
Question your motives
Traders who engage in revenge trading often have good intentions. After all, who can blame someone for trying to get back their hard-earned money? However, there is a difference between wanting to recover losses and simply not wanting to lose. Fear of losing leads to rushed, unplanned trades that are almost guaranteed to result in further losses. Asking questions like “Am I truly prepared to enter another trade?” or “How much more am I willing to lose?” can help prevent irrational trading behavior.
Learn to accept losses
It’s often said that trading is not so much about winning as it is about knowing when to cut your losses. Losing a trade is inevitable; it happens to everyone. The sooner you come to terms with this truth, the easier it will become to move on from unsuccessful deals. It will also enable you to better plan your risk management strategy. Whenever you’re feeling down from a bad trade, remember: knowing how to accept and deal with losses is the key to moving forward.
Take a break
Trading is both physically and mentally exhausting. Every now and then, traders need to step away from the computer screen and clear their minds, especially after a frustrating loss. Some may suggest studying new material or thinking up different strategies, but an even better idea would be to switch to an activity completely unrelated to trading. Think about what would make you feel refreshed and ready to get back into the game. Something as simple as taking a short walk may do the trick!
It’s easy to succumb to feelings of fear and anger when trades are not going as planned. However, giving way to revenge trading significantly decreases a trader’s chances of success. In the face of difficult trades, it’s always helpful to stop, reevaluate the situation, and take a breather. When all is said and done, what separates mediocre traders from exceptional ones is how they react to the challenges of trading.