Why Revenge Trading Never Works and Is A Bad Idea

revenge trading

Revenge trading syndrome is considered a curse in the world of trading. Sometimes trading can get on your nerves. Revenge trading is defined as more of an emotion rather than a trading practice. 

Whether you are a newcomer or a professional, revenge trading can attack you anytime. If you think that funding and knowledge are enough to trade, you’re wrong. A trader needs to have rational thinking ability as well. 

You should know that winning and losing are both a part of the trading world. You cannot make profits without incurring a few losses here and there. This type of trading is a sinking ship that is difficult to rescue. 

We’ve tried to break down everything about revenge trading in detail. Even if you are not practicing revenge trading, this article will help you prevent it in the future. 

Let’s Define Revenge Trading 

The name itself is enough to define this practice. A trader can indulge in revenge trading after the inability to accept a significant loss. 

The trader shifts the focus from risk management to retrieve the lost funds. After you lose money while trading, it’s imperative that you stop and analyze where you went wrong rather than jumping back in. 

The idea here is to get back into the trade to recover the lost amount. During revenge trading, rational thinking takes a backseat, whereas the emotional and furious sidekicks in. The trader doesn’t think that he may incur bigger losses than the one that pushed him into this state. 

You do not think practically during revenge trading, and hence the risk of losing is even greater. Most traders made in revenge trading are unsuccessful and do not bring any good to the trader. Revenge trading is not an ideal option in any situation.  

Why Is Revenge Trading Catastrophic? 

First of all, revenge trading exposes the trader to greater risks. You can lose a bigger sum than your previous trade, and that’s not going to help you mentally or financially. 

Apart from these lingering problems, revenge trading is more disastrous than you think. In simpler words, revenge trading is a realm that cannot offer anything but losses and anxiety. 

Revenge trading puts a mental barrier and will make you forget the exit and entry strategies. These strategies may be tried and tested and would’ve worked exceptionally well for you in the past. When you are revenge trading, you tend to forget these rescuing strategies you may have developed personally.

You will banish all ways of risk management. Rather than mitigating the risk, your prime attention will shift towards making larger volume trades. You will try to beat the market and extract the money. 

The trader will start trading according to the emotions and put aside all the strategy and logic. You will witness more losses than winnings in revenge trading. 

This practice can never have fruitful outcomes, even if it seems to be a convenient option. If you are revenge trading, you are throwing away all the time and efforts you gave to learning about trading. 

The Symptoms of Revenge Trading 

Since we have explained revenge trading as a syndrome, let’s analyze the symptoms as well. When you are under the influence of revenge trading, you tend to make all sorts of revenge trades. 

Let’s have a look at the symptoms or the nature of revenge trading. 

Making Large Volume Trades

You feel the lust and greed to recover the funds you lost through making large volume trades. This is one of the biggest mistakes people tend to make after losing money. 

The trade size increases, and the motive behind this is to make greater profits. This is a ridiculous plan that will result in more losses than profits. 

Revenge trading is a vicious cycle that goes on and on. What are you going to do if the next trade is also unprofitable? Will you think of making a bigger trade? A few traders will keep investing and trading. The greed to win overtakes the logic and strategies that the trader has. 

No More Stop Losses 

If you find yourself doing this, you should immediately stop. Removing the stop loss is another major mistake the traders make to profit each trade. 

The traders remove the stop-loss function because they want to profit and eliminate the possibility of making losses. This may sound like the right thing to do, but it’s not.

This trick can backfire, and the trader can lose everything. The stop loss reduces the intensity of loss that the trader has to bear. It’s best if you keep away from this tactic as it will not bring you any good. 

More And More Trading 

When you face several losses in a row, it’s normal to feel a bit low and experience low-confidence. At this time, you must stop and recover. 

A lot of traders start opening more orders after experiencing a series of losses. You will have your fair share of time to recover the losses. Overtrading and trading in volume will increase the risk of loss. 

More orders will mean more risk, and this will not end favorably. This practice has the potential to make your funds disappear. Even if you intend to cover the losses, you should take baby steps to avoid repeating the same mistakes. 

Tips to Fight Revenge Trading 

It is not easy to overcome revenge trading. For a few traders, revenge trading becomes a habit, and they cannot put an end to it. Thankfully, there are plenty of ways to recover from a bad trade.

You need to give yourself a break from trading and let yourself heal. You must keep yourself away from trading to avoid making regretful decisions. 

Let’s take a glance at the ways to fight revenge trading. 

Take A Break from Trading 

Don’t let yourself run back to trading immediately after facing losses. It is difficult for traders to keep the mind at a place after going through a big loss. The best thing to do is to take a few days off from trading. A couple of days will help you to take your mind off the loss. 

You should pause all trading activities and indulge yourself in something else. If you feel you cannot keep off the market, you should try to place very small trades. Taking a break will help you to gain a fresh perspective on the market. 

Under the Condition of The Market 

The first step to recovering the loss you just made is to understand the market. Spare some time and try to analyze what’s going on in the market and the factors affecting the trades. Try to find out the answers to the below questions.

  • Are there any strong trends and trading opportunities in the market currently?
  • What factors are driving the current market?
  • Are there any potential risk factors in the market right now?
  • What about the volatility in the market?
  • Which instruments are profitable?

Make A Trading Log 

The practice of maintaining a trading log will have a positive effect on the way you trade. While you’re making a trade, keep a habit of nothing all the why, where, and how.  

This log will help you to understand where you went wrong and what you did right. The trading log will help eliminate bad trades.  

Bring the Essential Adjustments  

After all the thinking and analyzing, it’s time to work harder. Your ultimate motive should be analyzing all the mistakes and bringing the necessary changes. After making all the assessments, you are ready to develop a new trading strategy or improvise your old one. 

It will help you to understand the pros and cons of your trading strategy. This is the best time to make amendments to the trading strategies. 

You must be extra cautious with your new strategy. Try to adopt a strategy that does not repeat the same mistakes as the old one. You must comprehend that losing the trade was not what you expected. Try to establish the goal of each trade beforehand. 

Analyze Your Current Strategy 

If you don’t wish to repeat the same mistakes, you need to look at your current strategy. Try to note down the loopholes and mistakes you made with this strategy. 

You may need a new strategy depending upon the market conditions. It’s also the ideal time to assess the entry and exit plans. Take up a 360-degree approach when making new strategies. 

Final Words 

Trading is a very subjective matter that can be easy for some and hard for the rest. While winning and losing is inbuilt in the world of trading, revenge trading is a practice you should never resort to. 

You should try and help other traders who are unable to detach themselves from revenge trading. It is better to relax your mind before you go ahead to make another trade. 

If you think that making more trades will bring back what you lost, you are just complicating it more. One of the best ways to learn to trade is through bad trades. It’s best to keep your emotions at bay and not let it overtake your experience. Try and make peace with your losses.