Trader Tip: Revenge Trading So you have been trading well the past few days, earning good pips in the Blue Point Trading Trader Trainee Programme You were out late last night, a little tired, but you have been doing so well it’s all good. Then ouch, a couple of bad trades. But it wasn’t your fault, it was the market and those darn algos, as well your internet cut because of your neighbor’s obnoxious kid interfering with your WiFi. Or perhaps it was a silly FAKE NEWS report that came out and destroyed the trend you were trading. Argh … so you think you can recover quick with a few quick counter trend trades. This will get you back on the good trading path as before. Ahh … you are now revenge trading. This Blog post discusses the trader psychological phenomenon of revenge trading.

Revenge trading refers to a style of trading that is motivated purely by the goal of recovering previous losses from the market. Loss aversion is the tendency for individuals to prefer avoiding losses rather than accruing gains. The theory was first introduced in 1979 by Kahneman and Tversky under the assumption that losses have a larger impact on preferences than that of the advantages of gains. The market is seen as an enemy that imposed justified or unjustified losses and the trader is keen on recovering the losses from the market. Traders who engage in revenge trading allow their personal emotions to override their rational thought process during trading, thus increasing the risk of making more mistakes that could lead to further losses. Revenge trading is very often one of the major reasons why many traders burn their accounts and fail.

So where do we start? First, be honest with yourself. Are you a person that is emotional when it comes to unpleasant events that occur in your life? Don’t take your own advice, ask others close to you and ask them if you are a person like this. Certainly if you have done this in your past trading and/or your personal feedback is one of this type of mind set, here are a few suggestions to help stop revenge trading:

  • Ensure you are trading with a Trade Plan, where you know the worst case scenario (Stops) for a potential loss – and accept this risk.
  • Don’t watch live charts on a minute by minute basis for hours. You are becoming to attached to each tick move. Have other tasks ongoing (like doing a good Trade Journal – another topic), to take your mind off the emotional ebbs and flows of market movements.
  • Never trade tired and lazy, with off the cuff knee-jerk responses to the markets. This means ensure you at your trade terminal for at least 5 minutes before you enter a trade, to ensure your mind is in thinking mode.
  • Use limit orders instead of market orders – in general limit orders take more thought (and time to enter) and might stop ill thought out trades.
  • Don’t move Stops, when market price gets close to your Stop.
  • If you you know your susceptible to revenge trading, and if you do have a heavy loss on a trade during the trading day, stop trading for the day and start again after a night’s sleep.

So I hope this Blog post will help you with a few tips to overcome any revenge trading, to become that more successful proprietary trader. Click here, or watch below a video presentation of this Trader Tip.

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Trader Tip: Revenge Trading

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