Every trader, whether they’d like to admit it or not, has fallen victim to revenge trading at some point in their trading journey. It is a common emotional reaction to losses in trading that can have consequences for traders who fail to recognize and control their emotions.

This article delves into the causes and dangers of, along with tips to help traders avoid it. In addition, developing a trading psychology focused on patience, discipline, and acceptance of losses is critical to avoiding it.

What is revenge trading?

Revenge trading refers to the act of chasing losses by aggressively trading more after experiencing a losing trade. It is an emotional reaction where a trader enters trades impulsively to try to win back losses from previous failed trades.

This is different from regular trading in these ways:

Trading frequency

Revenge traders trade excessively and impulsively without sticking to a defined trading plan while regular trading involves carefully planned trades based on strategy.

Risk management

This usually involves ignoring risk rules and overleveraging out of desperation to make back losses quickly while regular traders follow strict risk management.

Mindset

Revenge traders trade recklessly on emotion while regular traders have disciplined mindsets, avoiding emotion-based trading.

Strategy

Revenge traders forget about strategy and planning, acting on impulse while regular traders use defined strategies and plans for trades.

Revenge trading is ultimately an emotional reaction and generally leads to more losses due to reckless trading.

Common causes of revenge trading

This type of trading often comes from emotional responses to recent trades or market events. Some of the most common triggers for revenge trading include:

Missing a trade

Seeing a trade take off that you considered taking but didn't can lead to FOMO (fear of missing out). You may jump into a similar trade trying to get the gains you missed out on earlier.

Taking a loss

After closing out a losing trade at a loss, you may try to make the money back quickly by overtrading. This often leads to more losses as you will be trading recklessly.

Watching a trade move against you

Sitting in a losing trade that continues to move against you can cause frustration. You may double down or quickly enter a new trade trying to win back your losses.

Feeling like you missed out

If you stop trading for a period of time, seeing the markets make big moves in your absence can trigger you to act impulsively. You may overtrade trying to catch up.

Revenge trading usually makes losses worse instead of helping you recover from them. It's crucial to recognize these emotional triggers and have the discipline to walk away and reset after a loss. Patience and maintaining trading rules are key to avoiding pitfalls.

Tips to avoid revenge trading

It can be difficult to recover from a loss without giving in to revenge trading. Here are some tips to avoid this:

Take a break after a loss

Don't immediately jump back in after a loss. Give yourself time to clear your head and process the emotions. Take a walk, meditate, or do an activity to distract yourself.

Reflect on emotions

Understand why you feel inclined towards revenge trading. Are you angry, trying to get even, or acting on impulse? Recognize these feelings and defuse them before making another trade.

Stick to your trading plan

Have risk management rules, profit targets and stop losses already defined. Don't forget about these after a loss, because having a plan helps avoid impulsive revenge trades.

Set loss limits

Define how much you are willing to lose each day or week and once you reach that limit, stop trading. This helps stop you from constantly chasing losses.

Don't chase trades

Avoid the temptation to jump into trades to make up for losses. Focus on high probability setups, not trades out of frustration. Each trade should stand on its own merits.

The key is controlling emotions and maintaining discipline after a loss. Avoid trading when feeling vengeful, angry or impulsive and take time to cool down and reflect. With patience and discipline, all of these can be avoided.

Read this blog post of 10 common mistakes Forex traders make (and their solutions)

The Dangers of trading while emotional

Trading while in an emotional state is extremely dangerous and impairs sound judgment. Emotions like anger, frustration, and revenge can cloud rational thinking and cause bias in trading decisions. This often leads to irrational choices and actions that go against proven trading plans and strategies.

When experiencing intense emotions after a loss, our thinking brain shuts off and our instinctive "fight or flight" brain takes over. This prevents logical analysis of the market and assessment of risk.

It's critical to recognize when emotion is influencing trading choices. Common signs include chasing trades, overtrading, ignoring stop losses, holding on to losing positions too long, and doubling down after losses. These actions stray from trading plans and rules proven to work over time.

The impacts of trading emotionally include blown accounts, loss spirals, and broken trading psychology that's difficult to rebuild. Controlling emotions is an essential skill all successful traders must develop. Never trade just to satisfy a feeling or prove a point. Stay disciplined and stick to the trading plan even during the tough times.

How to stay disciplined when trading

One of the most important ways to avoid revenge trading is to develop discipline and patience as a trader. Here are some tips:

Wait for quality setups

Don't take trades just because you feel you need to make up losses. Instead, wait patiently for your trading strategy's entry rules to be met before entering a trade.

Follow your trading rules

Stick to your tested trading plan and rules. Make sure you don't deviate or make exceptions just because you want to chase profits quickly.

Don't force trades

If the market conditions don't match your strategy, don't force a trade just for the sake of trading. It's OK to step back and wait for the right opportunities that fit your plan.

The key is developing the discipline to stick to your trading rules and wait patiently, rather than acting emotionally. By avoiding desperation trades and not forcing setups, you'll boost your chances of long-term trading success and reduce the risk of blowing your account.

Trading psychology tips

By developing a trading psychology centered around discipline and accepting losses, traders can avoid revenge trading. Here are some key trading psychology tips:

Accept losses as part of trading

Losses are inevitable, even for the best traders. View losses objectively as data points rather than failures, and remember to stay calm when taking losses.

Detach from outcomes

Don't tie your self-worth to trading outcomes. Trading results don't define you as a person, just focus on making the best decisions possible.

Focus on the process, not results

Judge your trading based on whether you followed your trading plan and rules. If you make smart trades that align with your strategy, be content even if the outcome isn't profitable.

Don't take losses personally

The market doesn't know or care who you are. Losses aren't targeted at you specifically so avoid counter-trading to get revenge on the market.

When to get help

Getting outside support could be the next step to overcoming these tendencies. Traders who continue to act rashly and emotionally despite best efforts to self-correct would benefit from seeking professional assistance. This is not a sign of weakness or failure, but shows wisdom and commitment to growth.

Professional assistance for emotions and discipline issues

A therapist who specializes in treating impulse control disorders can provide customized strategies for managing emotions and making disciplined choices. Through examining thought patterns and core beliefs, you can adopt new coping mechanisms.

Work with a trading coach

An experienced trading coach can pass on trading psychology tips, reinforce practices, and assist with developing a risk management plan. They act as an objective, constructive guide dedicated to your trading success.

Online Support Groups

Connecting with fellow traders in online communities provides social support, encouragement, and accountability. Veteran traders who have overcome similar struggles are eager to give advice which helps you realize you're not alone in the ups and downs of trading.

Conclusion

In conclusion, every trader encounters the temptation to act out at some point in their career. This emotional reaction leads to impulsive and often reckless trading behavior. Recognizing the triggers and understanding the common causes, such as missing a trade, taking a loss, watching a trade move against you, or feeling like you missed out, is crucial.

To avoid falling into the trap, discipline and patience play an important role. Taking a break after a loss, reflecting on emotions, sticking to a trading plan, setting loss limits, and avoiding the urge to chase trades are essential strategies.

For those struggling with persistent emotional challenges, seeking professional assistance is an option. Therapists or counselors specializing in impulse control disorders can offer tailored strategies, while working with a trading coach provides expert guidance on trading psychology and risk management. Online support groups offer a sense of community, sharing insights to prevent repeating mistakes.

In summary, overcoming revenge trading requires a holistic approach that combines self-awareness, discipline, and external support. By adopting these strategies and recognizing the importance of a resilient trading psychology, traders can navigate the challenges of the financial markets with greater success and longevity.