We cannot ignore that we all want to increase our profits in the trading market. No one in this globe wants to face loss in anything, so why would they compromise in trading also? Yes, it is dynamic and volatile just like the share market is, there isn’t any fixed amount of profit or accurate guarantee of the future market. Due to this reason, some individual investors and traders are leading their way towards revenge trading, facing and bearing huge amounts of losses that also hurt them causing them to distract from their original strategic trading.
Managing an unstable market, investing in stocks during trading, keeping a logical attitude, being rational, and maintaining your focus are the hardest and most important things to do in the business even though they sound simple.
Controlling your emotions and maintaining to keep them at a low level so that they don’t determine your investment decisions should be your main focus. As human beings, sometimes we aren’t able to control our emotions. Let’s see further read to learn what revenge trading is, strategies to avoid it, and how it is risky.
Definition of Revenge Trading
Revenge trading is common but harmful in online forex trading which every trader has done at least once in their lifetime. This appears when traders, affected by emotions, attempt to recover losses hastily. This behavior can also be seen in seasoned traders and is not limited to beginners.
Revenge trading refers to an emotional reaction to an important and abrupt loss, prompting traders to rejoin the market, with the expectation that their losses will be recovered without any strategy or analysis. This method carries significant risks, as it usually results in even larger losses.
The impulses driving revenge trading are adaptable, enclosing anger, greed, fear, and shame. These emotional reactions make the trader have poor judgment resulting in making bad decisions with the lack of rational strategy.
General patterns in revenge trading are overtrading, entering positions with a lack of analysis, and declining to limit losses.
Risks of Revenge Trading
Unfortunately, due to their lack of awareness of risks, most beginner traders are easily attracted to revenge trading. The clearest sign of it is that you put your whole trading capital a risk by investing in something that you should have ignored. Losing faith in your trading abilities is another risk of revenge trading.
It’s just like an emotional rollercoaster where the beginning is hopeful, then the next moment the market is standing against you, which leaves you in despair. The bitter part is the moment you realize you have come back to your senses, but your account balance is already empty along with your confidence as a trader. It’s not a smart move to make your emotions the leader of your trade decisions.
How to Check Whether you are Revenge Trading?
The following are the ways to find out if you are leading towards revenge trading:
1. Emotional Triggers
When you lose a trade, you may intensely feel discomfort, anxiety, or anger. This can result in a poor judgment of trading.
You may see yourself back in the market just after facing a huge loss, without any proper research, and strategy.
2. Overtrading
The clearest sign of overtrading is the increasing number of irrational trades. Rather than taking the path of calculated decisions, you start going the way of taking riskier positions, just in the hope of getting a big profit from it.
The trades start happening within a short time because of this type of mindset that includes the avoidance of proper risk management. It will distract you from your planned strategic trading and make mistakes you usually ignore.
3. Tunnel Vision
After a huge loss, you may see yourself obsessed over a particular market or asset so that you can attempt to win over it. This generally leads to running after a trade and making bad decisions under the influence of emotion instead of strategy.
You won’t be able to stay away from the screen even though you are in despair, because you will start believing that focusing on it will make up for the loss.
How to Avoid Revenge Trading?
Revenge trading is considered to be a hard impulse to avoid. The following are some of the strategies that will help you in avoiding revenge trading:
1. Always Remember Your Roots
If you come across this message it’s probably because your method includes a lot more than selecting stock symbols randomly. You craft trading plans. Monitor the market shifts to identify trends and find the moments to enter and exit trades.
It’s likely that these skills have developed gradually through practice and experience; try to keep them in mind even when you’re feeling discouraged. Take a moment to refocus by going to your trading tactics or analyzing the charts. Anything except making revenge trades.
2. Keep a Trading Log
To achieve success, as a trader it’s crucial to approach trading with the perspective of a journalist. When executing a trade remember to record the Where the Why and the How. What prompted you to enter this trade? What sparked the idea for it?
After going over your log after a trade that didn’t go as planned you’ll come across one of two possibilities – either you made a mistake or you didn’t. If indeed an error was made you now know what to work on for reference.
3. Take a Break
Sometimes switching off your computer and avoiding the temptation to use it is considered best for taking a break. You can also switch your phone to airplane mode to relax your mind.
Taking a stroll outside or engaging in activity can be refreshing and rejuvenating for both mind and body alike; perhaps even indulging in a steak, for lunch could be a delightful change of pace from the constant screen exposure nowadays! Speaking from encounters with this advice – stepping into the sunlight can truly provide an outlook, on things.
4. Manage Risk
As momentum traders, we are always looking for stocks that can go up 50-100% or more. But beginners often mess up risk in these trades by taking too big positions or chasing momentum without knowing the stop. The solution to this bad habit is to take smaller positions on stocks that have a big range and always know your max loss and stop loss.
How to Maintain Trading Discipline?
If you trade without discipline it would lead to the loss. The given below are some tricks to maintain trading discipline:
1. Keep your trading schedule up-to-date. It will become a practice, and the placement of trades will be determined by that.
2. Don’t move away from your practiced trading strategies. Trying new strategies and finding luck in them is fine. But, it should be limited to small trades with small potential losses.
3. Grasp the way on how to locate investing trends. Too much focus on websites and digital platforms can divert your attention. This will result in making irrational trading decisions.
4. Acknowledge that risks will always be associated with trading. Doesn’t matter if you are a seasoned trader or a beginner, you will sometimes have poor days in the trading market.
5. Learn when to stop trading – It’s okay to call it a day if the trading isn’t going in a good direction. Stop trading at that exact moment or it will cause you loss.
Conclusion
To sum it up, revenge trading can be stated as the result of rejection and hurtful behavior that leads to a gloomy passage of ruin where even the most successful traders are found. Traders should acknowledge the fact that they are human beings and their emotions matter and can be controlled. They must learn to overcome and accept the losses made as part of life and trading. The strategies we have discussed in this article will help you in avoiding revenge trading. It will encourage you to be disciplined, focused, and a successful trader. Keep in mind that trading is a long game, and your success cannot be decided by just one trade.