There is an agelong argument in the trading industry that one cannot call themself a successful or expert trader unless they have experienced considerable loss. And because it’s technically impossible to trade for a really long while without losing, I think this argument is true.
You win here; you lose here…this is the foundation of every business. And since trading itself is a form of business, we cannot absolve it from such dynamics.
However, sadly, many traders do not know how to handle losses in trading. The inability to handle losses appropriately may result in various poor trading habits, the worse of all, revenge trading.
Have you been caught in this trap? Here is how to recover from revenge trading and return to your winning ways.
Best 5 Ways to Recover from Revenge Trading
1. Do not Despise Losing
First, you need to start seeing losses as normal in trading. This way, you will find it easier to manage your emotions and approach trading more logically. Remember, emotions-based trading isn’t trading; it is gambling.
Get comfortable with your losses – denying what has happened is no point. Instead, identify why it happened and determine the best ways to curb your losses.
An excellent way to remain calm while losing is to assume you are a loser even before you place a trade. While this may be somewhat tricky, particularly when you are extreme, it is a great start to recovering from revenge trading. So you need to find a perfect balance.
Assuming you are a loser involves identifying the risks involved in that particular trade and determining whether such risks are worth taking. Also, determine how much money you’re willing to lose or make on that trade.
After that, explore the set-and-forget approach to protect you from your emotions further. It’s hard, honestly, but it is what differentiates winners from losers. So, you need to pick a side.
2. Take a Break from Trading
Sometimes, all you need is a break to save yourself from yourself. Stop trading for a while and engage with something entirely different from the financial world. Experience tells me this will help you recover quickly from your unhealthy state of mind and, more importantly, protect you from entering the next trade angry.
The scope of this is pretty straightforward. When completely unconnected from the market, whatever you do cannot directly or indirectly affect the remaining money in your trading account.
When you think your mind is clearer and you’ve gotten over the loss, you can return to your trading workspace and return to work!
3. Create a (New) Trading Plan
Another way to recover from revenge trading is to have a trading plan, or if you have one already, create a modified version. Apparently, your existing plan has failed, so you need a revised version that incorporates lessons learned from your previous failures.
A comprehensive trading plan is a document detailing your trading goals and strategies, risk management strategies, trading rules, loss tolerability, etc. As the name suggests, it is – say, a journal – that contains everything that guides your “trading business.”
Now, it’s one thing to have a trading plan; it’s an entirely different thing to follow the plan religiously. A trading plan is completely useless if it’s not followed, and it’s impossible to recover from revenge trading without a plan.
4. Have a Trading Supervisor
Many traders – often newbies – struggle to trade independently. This doesn’t mean they aren’t good at trading. They are, but they cannot just do it on their own.
A trading supervisor or mentor helps track your progress. Progress here doesn’t only mean your profit and loss margin; it also includes how much you follow your trading plan, assess your risk management strategy, etc.
It can be hard navigating the financial markets all alone, and may impact how accountable you are to yourself. But with someone to report to, you have no choice but to be accountable. Your trading supervisor can either per one person or a support group – it largely depends on what works for you.
5. Build Your Self Awareness
How much do you know yourself? How much do you know about your feelings? Do you know how you’ll react to certain trading situations?
Building your self-awareness also helps you avoid impulsiveness. Knowing yourself and your feelings is very important when looking to reduce your losses. More importantly, it helps you prevent situations that may cause irrational trading decisions, such as revenge trading and overtrading.
Revenge trading is avoidable. But if you couldn’t, and you have become a victim, the good news is you can recover from revenge trading and return to trading healthily. I hope you find the tips discussed in this article exciting and helpful.
Below are a few more articles on trading psychology that I’ve recently published: