Revenge trading has been around for a long time. This is because many traders accrue significant losses and lose track of strategic trading altogether. This happens due to the unpredictability of the trading market. We’ll examine the concept behind “what is revenge trading” and the best ways to avoid it. Let us get to it.
What Is Revenge Trading?
Revenge trading is irrational trading done with anger or other negative emotions due to a significant capital loss in a trading period. This response occurs when a trader experiences a huge loss. The main idea is to recover from the loss immediately by putting on another trade.
There are different reasons for revenge trading. It can happen because of the overall uncertainty in the trading market and the possibility of profit-making in the next trade. It can also be a part of The Martingale Trading Strategy. The Martingale Strategy is where a trader opens a bigger trade after making a loss; they assume the next trade will bring a substantial profit to recoup their losses.
The emotions involved with revenge trading can be categorized as follows:
- Anger: When a trader is disappointed in losing a trade and wants to recoup the initial losses, they get frustrated and angry and lose more than intended.
- Greed: This is one of the critical sentiments in the trading market, and as you try and make more money, traders fall into the trap of revenge trading.
- Fear: Most revenge traders trade for fear of making a significant loss. When this happens, it can push traders to revenge trade.
- Shame: Most traders revenge trade to avoid shame. This is common as trading to avoid shame always ends with major losses.
While it is possible to make money through revenge trading because the market is unpredictable, it is a lousy approach to trading. If it goes wrong, it can make you lose faith in your trading abilities and reduce your confidence.
How To Avoid Revenge Trading
Traders, either newbies or veterans, risk falling into the trap of revenge trading. This makes it more important to know how to avoid the trap. Some of the ways to avoid revenge trading are:
1. Take A Break From Trading
The bigger the loss, the harder it is to keep an objective view and act rationally. In these cases, the best course of action is to step away from any form of trading or investment for the time being. This is to give your brain time to accept the loss and plan your strategy with a clear mind free from doubts.
2. Evaluate The Market Conditions
It is crucial to evaluate the market conditions when taking time off. You should be looking for safe trades that can give you profits. Going for small and multiple profits is safer than a large investment. This minimizes the risks taken on trades, as larger investments have higher risks.
3. Make A Self-Assessment
When taking time off, take a logical self-appraisal period to determine what led to the loss and the revenge trade. This will provide you with an objective view of the situation and the information needed to rectify the consequences of the revenge trade.
4. Maintain Trading Discipline
This is an essential part of trading, as trading without discipline will eventually resort in a loss. Some ways to help you develop and maintain a strict trading schedule are:
- Do not stray from well-vetted trading strategies.
- Learn how to spot investing trends.
- Always recognize that losses are unavoidable.
- Recognize your limit and know when to stop.
All these pointers will help traders to maintain a strict trading lifestyle and reduce losses that lead to revenge trading.
What is revenge trading? Can I ever be free from it? How do I maintain a strict trading regimen? These problems have been answered in the article above. We hope it will immensely help all traders struggling with revenge trading. Please comment below if you have any ideas or remarks; we will be pleased to hear from you.