What is Revenge Trading?

Sometimes, a single wrong trade can be so disruptive that we enter the next trade in anger and haste, not after careful consideration. Our mind simply wants to recoup previous losses. This very thought pushes us toward revenge trading. In today’s world, with online trading and options trading rapidly expanding, this problem is becoming more common among both new and experienced traders. Revenge trading gradually saps your money, patience, and discipline. In this article, we’ll explain it in simple terms.

What Is Revenge Trading? 

Revenge trading occurs when a trader, intent on quickly recouping previous losses, trades without proper planning, setup, and patience. While normal trading decisions are made based on charts, strategy, and risk management, revenge trading is driven by anger, anxiety, and the desire to make quick profits. As soon as a stop-loss is hit, many traders immediately re-enter, often with larger lot sizes. This results in a small loss turning into a significant loss within minutes. This is why revenge trading is considered one of the most dangerous enemies of professional trading.

The Psychology Behind Revenge Trading

1. Loss Aversion: When a trade suffers a loss, the mind feels it deeply. According to research, the pain of loss affects a person almost twice as much as the joy of profit. This is why, instead of making a calm decision, traders try to quickly cover their losses, which becomes the beginning of revenge trading.
2. Ego and the desire to prove themselves right: After a loss, a trader’s ego often becomes activated. They feel that the market has proven them wrong and now it is necessary to “prove themselves right” in the next trade. Under the pressure of this ego, they enter even without the correct setup.
3. Difficulty admitting mistakes: A major reason for revenge trading is that many traders are unable to admit their mistakes. Instead of admitting, they blame the market and, driven by that anger, trade again.
4. The Effect of Stress and Hormones: After a loss, stress hormones increase in the body, weakening the ability to think and reason. Consequently, decisions are made based on emotions, not logic.
5. Increasing Mental Pressure from Social Media: These days, screenshots of huge profits appear daily on social media. This further increases the pressure on traders to make quick profits, further fueling revenge trading.

Read Also: Risk Management In Trading: Meaning, Uses, and Strategies

Real-Life Trading Situations Where Revenge Trading Is Triggered

1. Stop-Losses Hit Continuously: When a stop-loss is missed on two or three trades in a row, a trader’s confidence begins to wane. In this frustration, they take the next entry without the right setup, hoping to immediately recover the loss.
2. Missing a Big Breakout: Sometimes, a stock or index moves sharply, leaving the trader out. Then, thinking “I missed the opportunity,” they force an entry at the wrong time.
3. Watching Others’ Profits: Seeing screenshots of profits daily on social media creates the pressure that everyone is making money, and only they are left behind. This thinking gives rise to Revenge Trading.
4. Breaking Their Own Rules Once: When a trader breaks their own rules once and suffers a loss, the risk of repeating the same mistake increases.
5. The Obsession to Recover Yesterday’s Losses Today: Many traders start the new day with the thought that they must recover yesterday’s losses today at all costs. This is the most dangerous beginning of Revenge Trading.

Hidden Signs You Are Revenge Trading

1. Increasing Lot Size After a Loss: If you start placing larger lot sizes in your next trade after every loss, it’s a clear sign that decisions are being made based on emotion rather than planning.
2. Taking Trades Without the Right Setup: When you rush into a trade without checking the charts and without entry confirmation, this is the beginning of revenge trading.
3. Excessive Overtrading: Continuing to trade after one or two bad trades, especially after the set time, indicates a loss of control.
4. Turning Stop-Loss to Emotions: Moving or removing Stop-Loss due to fear of loss is one of the most dangerous revenge trading habits.
5. Repeatedly Checking the P&L Instead of Price Action: When the focus shifts more to profit and loss than to charts, understand that decisions are being made based on emotions.

Read Also: Benefits of Online Trading

How Revenge Trading Slowly Destroys Your Trading Career

1. Financial Damage: In revenge trading, traders try to recover quickly after a loss and increase their risk. This quickly turns a small loss into a large drawdown, putting their entire capital under pressure.
2. Psychological Damage: Continuous losses erode a trader’s confidence. Decisions made with fear increase, making it difficult to make the right decision even at the right time.
3. Discipline Damage: When revenge trading becomes a habit, stop-loss, risk-reward, and trading rules gradually become ineffective. Even with a trading plan, they are not followed.
4. Long-Term Impact: Many traders leave the market not because of the strategy, but because of a lack of emotional control. A strategy mistake causes a one-time loss, but revenge trading causes daily losses.

Why Most Traders Fail to Control Revenge Trading

1. Lack of Written Trading Rules: Most traders lack clear, written rules. As soon as they suffer losses, they forget their strategy and start making decisions based on emotions.
2. Lack of a Daily Loss Limit: When the maximum loss for the day isn’t predetermined, traders don’t know when to stop. This encourages revenge trading.
3. Lack of Emotional Cooldown: Taking a break after a loss is essential, but most people immediately jump into the next trade, leading to a growing number of mistakes.
4. Unrealistic Income Expectations: The thought of making a lot of money in a few months puts undue pressure on trading.
5. The “Quick Money” Effect of Social Media: Stories of quick money seen on Telegram and YouTube further unbalance a trader’s thinking.

Read Also: What Is High-Frequency Trading (HFT)?

How to Stop Revenge Trading

1. Setting a Daily Loss Limit: The first rule to prevent revenge trading is to set your daily maximum loss in advance. When a trader clearly knows how much loss they can tolerate in a single day, they are able to restrain themselves after that limit and avoid making wrong decisions due to emotions.
2. Taking a Cooling-Off Period After a Stop-Loss: The biggest mistake is to enter the next trade immediately after a loss. At that time, the mind is filled with emotions and the ability to think is impaired. A 20- to 30-minute break helps to rebalance the mind.
3. Making a Fixed Check Before Every Trade: Before every entry, it should be clear why the trade is being taken, what the risk-reward balance is, and what timeframe the trade is for. This habit makes the trade professional not emotional.
4. Understanding the Difference Between a Strategy Mistake and an Emotion Mistake: Not every loss is caused by strategy. Sometimes mistakes are simply made in haste or anger. It’s important to distinguish between the two.
5. Stay away from looking at profit and loss while trading : Repeatedly checking the P&L keeps your focus on the money, not the chart. When the focus is on execution, the likelihood of revenge trading automatically decreases.

Conclusion

Revenge trading is a mistake born of emotions, not strategy. When combined with ego and haste, a small loss can gradually turn into a significant drawdown. A true professional trader is one who prioritizes discipline over profits. If you learn to recognize your emotions early and adhere to a strict trading system, revenge trading won’t overwhelm you. There’s no need to seek revenge against the market; simply taking control of your decisions is the ultimate victory.

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