One of the major challenges of traders is to prevent emotions from getting in their way when making trading decisions. As you get more experienced, you learn to control your feelings and emotions.
Revenge trading is one of those common mistakes that an aspiring trader makes, but sooner or later, they have to learn to move past it.
Today, we will discuss what revenge trading is, how you fall into this trap, and how to be more disciplined in trading.
What Is Revenge Trading?
Revenge trading happens when you take a big loss and rather than taking some time to cool off your head and analyze how things went south, you execute even bigger and riskier trades to recover quickly.
However, the problem is, the market does not always move according to your predictions. As a result, although you double or triple your position size to make up for your losses, you often end up losing even much more.
Yes, it is possible to see a small profit or even break even sometimes. But that rarely happens and in most cases, this leads to huge losses.
The psychology behind this tendency lies in the urge to win back your losses instead of making rational decisions. This is the reason this approach does not always end well.
When back to square one after being so stubborn, you may blame your bad luck or the platform for not placing trades fast enough, or you may think this was simply not your day.
No matter what, deep down you actually know it was you whose greed and lack of proper forethought caused this.
Nobody should lose their valuable capital this way. It is time to take matters into your own hands before it hurts you badly not only financially but emotionally as well.
Understanding Revenge Trading: Why We Do It
Naturally, it is difficult for us to accept our failure. Day trading is one of those exceptions when you have to embrace failure, learn from it, and move on for the better.
Here is what drives us to pursue revenge trading over and over again:
The Human Ego
After a losing trade, you feel like you were right because your ego says so, even if the data shows you something different.
You try to prove that the market is wrong and you are right. As a result, instead of reevaluating the market movements and your decisions, you rush back to make a quick recovery.
Trading Our Expectations
Lacking experience, beginner traders usually perform based on their predictions and expectations. As a result, you get more dependent on trends and signals, which results in some of your worst decisions.
Fear of Failure
We live in a society where only the winner is praised and rewarded, which makes us unwilling to accept our failure. This mindset is what convinces you to keep pushing forward while the results actually lead you in the wrong direction.
Careless Trading
When your mind is not in its normal state because you have just lost a large amount of your hard-earned money, you forget about your principles and rules and began acting like a gambler.
Inexperience
Losing is part of learning the trading process. Unless you have had some big losses, you won’t realize the real value of discipline, strategy, and patience.
You could take it as a wake-up call. Since each loss might teach you something new, your skill and performance will improve with every setback over time.
How to Avoid Revenge Trading?
As a trader who takes this as a serious profession, your focus should always be on the journey, not on making constant profits.
Safeguarding your capital to trade another day is more important than risking it all for some big earnings.
Seasoned traders know that success comes only through patience and discipline. The key is to step back, analyze your wrong moves, and learn from the mistakes.
Now, we will share the most effective ways to be more disciplined as a trader. However, it is important to mention that what works for you may not work for another trader.
You can try each of these methods to see which one(s) works for you.
1. Accept the Fact We All Make Mistakes
Never think that you know exactly where the market is moving. Overconfidence is a killer in this industry.
When building a strategy, be prepared to fail and create a “Plan B.”
This could include a backup approach like switching from trend-following to range trading, an exit plan to further protect the remaining funds, or creating stricter stop-loss, position sizing, or capital allocation rules.
2. Do Not Lose Faith on Your Strategy
Every experienced and skilled trader has a unique strategy that works only for them. Usually a combination of several techniques, they have perfected their approaches after lots of trial and error over the years.
To give you some idea, in high-level trading, every strategy involves one or more of these techniques: trend following, pairs trading, mean reversion, market making or HFT, and alternative data.
Some days, market conditions and price movements might defy logic and won’t make any sense to you.
Do not let your emotions take control over your mind in these challenging times. Staying displayed is the only way to succeed.
3. Learn to Embrace Failure
When you take a loss, just let it go and move on.
You know by now that revenge trading occurs when you are obsessed with winning back one or a few bad trades.
Remember this motto – you do not really have to win every trade today; tomorrow might come with better opportunities.
4. Achieve Emotional Mastery
This is a tough nut to crack. The good news is, our brain is elastic, which means new habits can be formed with regular practice.
Before you take a trade, make sure you are feeling good and your mind is stable. Any negative emotion – whether greed, fear, or impatience – could cloud your judgment.
One great way is to ask yourself these questions before you commit to any trade –
a) Why are you taking this trade?
b) What do you think might happen?
c) What if it ends up in a loss?
d) Is your decision based on intuition, hope, or a technical signal?
Journaling is another effective way to clear your thoughts and for self-reflection. Later, when you will go through your content, you will have a better understanding of your trading habits and approaches, and when exactly you tend to be more impulsive.
We also recommend meditation for all types of traders. It helps you to be more aware of your feelings and emotions, and recognize how they influence your actions.
If you can identify your emotional triggers, you can learn how to control your thoughts and reactions.
Books like The Mental Game of Trading by Jared Tendler and The Zen Trader by Peter Castle can be of great help.
5. Take Some Break When You Feel Like It
Meditation will teach you how to be fully focused and present when trading. At Kingsley Capital, we are a great fan of meditation and spirituality for this reason.
When you have just started executing trades, you will do fine with renewed energy and enthusiasm. But as the hours pass by, mental fatigue could set in and your concentration could start wearing thin.
If you think things are not in your favor, just give it a break.
There are some platforms like Ninja Trader and Tradovate that allow you to set daily loss limits and lock your account until the trading hours close for the day. As a result, the system automatically keeps your activities in check.
6. Set Strict Rules
As part of being more disciplined, develop a solid trading plan and follow it no matter what. In fact, without this, you might be just gambling.
One example is, you can take a 20-min walk after a trade (whether good or bad) to clear your head.
If there is loss, you can decide to stay away from trades for longer and read a book, watch TV, or do something else, which is totally unrelated to trading. You need this temporary distraction to break free from the emotional cycle of a losing trade.
It is also a smart move to keep your daily trading volume in check so you are in control of your trading.
7. Reduce Lot Sizes
If emotions often take over your decisions, you can trade with micro lots to limit the damage.
For example, let’s say you are trading a standard lot of 100,000 units. A 10-pip move against you could result in a $100 loss. That kind of loss might leave you feeling pressured to recover it quickly.
Now consider trading a smaller lot like 10,000 units. With the same 10-pip move, your loss would only be $10. This smaller loss is much easier to handle emotionally and allows you to stay composed and keep following your strategy.
8. Stick to Higher Time Frames
When you reduce how often you trade, it becomes easier to avoid impulsive decisions.
For instance, trading on a daily chart means you might only take a few trades per week, compared to multiple trades per day on a 5-minute chart.
With higher time frames, you can focus on the bigger picture and make decisions with less emotional pressure.
In other words, short-term market movements can be noisy and tempting to react to, but a longer view gives you more clarity and helps you trade with a calmer mindset.
9. Stay Away From Charts
Watching charts for long periods is tiring for anyone, especially if you are not used to it. Over time, it can become mentally draining and stressful.
Many charting platforms now offer helpful features like alerts and notifications sent straight to your phone or smartwatch. As a result, you can step away from the screen without missing important opportunities.
By reducing the time you spend staring at charts, you can give your mind a break and stay more focused when it is time to trade.
10. Find an Objective or Mechanical System
Discretionary trading – where you rely on your own judgment for every decision – can make it easy to let your emotions take over. Instead, consider using a mechanical trading system.
A good system is based on clear rules and can be backtested with historical data. This approach gives you a framework built on probabilities and removes much of the uncertainty.
With a mechanical system, you are less likely to make impulsive choices and more likely to stay consistent over time.
11. Try to Diversify
Diversification is a tried-and-true way to reduce risk and emotional strain in trading.
Instead of focusing all your efforts on a single market, consider trading low-correlated instruments. For example, you could balance your portfolio by trading commodities, stock indices, crypto, or energy markets.
This way, if one market is particularly challenging, another might offer steadier opportunities.
How Overtrading and Revenge Trading Differ
While both overtrading and revenge trading are products of emotional decision-making, they happen for different reasons.
Overtrading occurs when you take too many trades to capture every small market move. This is usually driven by excitement, greed, or a fear of missing out.
However, trading too often usually leads to higher costs and lower-quality trades.
On the other hand, revenge trading happens after a significant loss. Frustrated and unwilling to accept failure, you try to recover the loss quickly instead of sticking to your plan.
Both habits can hurt your trading results, but recognizing the underlying emotions can help you avoid falling into these traps.
Wrapping It Up H3
Our advice on how to stop revenge trading might sound nice to you. But controlling emotions and changing habits is one of the hardest things to do, so be up for the challenge.
The only way to succeed is through patience, focus, and determination. If you are serious about trading and eager to achieve financial freedom as a full-time trader, there is no easy way out.
At Kingsley Capital, we are offering an incredible passive income opportunity where you just invest and our high-profile traders execute trades in the Forex market on your behalf.
You can enjoy up to 60% profits a year, while traditional vehicles like stocks, bonds, and real estate have an average yearly return of 10% return.
This is the key to freeing yourself from the stress of trading’s emotional ups and downs and enjoying the best moments of your life without constantly chasing big money.
If it sounds interesting, book a call and learn more about our passive income stream.
FAQs
1. What is an angry trade?
Ans. Angry trading is just another name for revenge trading when you keep doubling or tripling down after a losing trade to quickly make up for the losses.
2. What is toxic trading?
Ans. Toxic trading refers to practices that exploit inefficiencies, manipulate prices, or harm other participants. Some examples are front-running, spoofing, insider trading, or high-frequency trading strategies designed to exploit slower participants for an unfair market advantage.
