Revenge Trading Explained – The Mistake That Ruins Traders
Introduction
Everyone dreams of earning profit in every trade in trading but not every trade gives you profit whether you are a beginner trader or an experienced trader. When a loss occurs, a psychological emotion comes after that – “revenge”. This emotion takes you into a dangerous trap which is called “Revenge Trading”.
In this article, we will go into detail about what is revenge trading, how it happens, why new traders keep getting trapped in it, and how it can be avoided. Another name of revenge trading is dangerous trading.
What is Revenge Trading?
Revenge trading is the trading that happens when you make a loss in a trade and after that you trade again without doing any analysis to cover your loss and you are not able to cover the loss and end up making a loss.
Example:
Why do new traders become victims of revenge trading?
1. Emotional Decision Making
New traders make emotional decisions due to lack of experience. When a trade suffers a loss, frustration or anger forces them to quickly take another trade – without analysis.
Starting
When new traders start trading, this is a common mistake. It happened to me as well. But if you have had time in the market and still you are trading in revenge, then you are making a big mistake. Because of this, 99% of people lose in trading and quit trading.
2. Overconfidence and Ego
Many times, new traders feel that their analysis was perfect, the market was wrong. This ego leads them to revenge trading.
3. Lack of Trading Plan
If someone does not follow the proper risk management and stop loss system, then every loss becomes an emotional trauma. Then taking revenge for the loss becomes their goal.
Some negative effects of revenge trading
Revenge trading is not just a bad way to recover losses; it can also end your trading career.
1. Capital Loss
You can lose all your capital in a day or a week if revenge trading happens repeatedly.
2. Mental Health Impact
Anger, stress and regret affect your mind. Your focus and decision-making power are lost.
3. Loss of Discipline
Discipline is the biggest asset of trading. Revenge trading breaks this discipline, and you become an emotional slave.
How do we know that you are doing revenge trading?
If you see these symptoms, then understand that you are doing revenge trading:
- Immediately after a loss, you take the next trade without thinking. This is revenge trading
- Your main goal is only to recover the loss; you do not care about profit or analysis.
- You increase your position size without calculating the risk.
- You repeatedly take trades in the same stock just out of anger. I feel something like this
Real-Life Example: Harsh war Experience
HARSH was a college student who used to do part-time trading. One day he lost ₹5000 in Bank Nifty. In anger, he immediately took a position of ₹10,000 without analyzing. That trade also resulted in a loss of ₹7000.
One day he lost ₹12,000, while his monthly budget was ₹15,000. This incident put him into depression. Revenge trading took away not only his money but also his mental peace.
How to save yourself from revenge trading?
1.Discipline
You trade with money management such that I do not lose so much % of my capital daily that my psychology and I do not get stressed. If you trade with discipline, you will avoid revenge trading.
2. Accept the Loss
The first thing is to accept the loss. Every trader suffers loss; this is a part of trading. Loss means you are not a loser.
3. Follow a Trading Plan
Fix the entry, stop loss and target before every trade. If the stop loss is hit, exit the trade – simple.
4. Take a Break After Loss
After a big loss, take a break of at least one day. Don’t trade that day, analyze where you went wrong.
5. Start Journaling
Keep a record of every trade – entry, exit, reason for trade, and emotions. This will help you identify revenge trading patterns.
6. Use Smaller Position Sizes
If you work with smaller position sizes, losses will be manageable, and you will not become emotional.
Psychology of a Successful Trader
A successful trader never trades with emotions. He remains calm even after suffering a loss and works according to his plan.
"Trading is not about being right, it’s about making money."
Remember this quote even when there is a loss.
Do only beginners do revenge trading?
No, professional traders can also fall prey to revenge trading if they lose mental control. But the difference is that professionals immediately understand their mistake and stop. Because they have gained understanding of the market and they know that doing so will only result in loss.
Beginners remain trapped in an emotional spiral and end up losing all capital.
social media and Revenge Trading
People show their profit on social media – ₹5000 trade turned into ₹20,000! When new traders see this, their FOMO (fear of missing out) increases. If they incur a loss, they do revenge trading even faster.
Tip: Never try to recover your loss in comparison to someone else's profit. Trade only on the basis of your analysis and planning made by yourself.
Final Words – Save Your Trading Career
Revenge trading is an emotional trap in which new traders get trapped the most. In the process of recovering this short-term loss, your long-term capital can also be lost.
If you want to take trading seriously, then learn to rise above emotions. Loss is a process – learn from it, accept it and move forward.
Bonus tip:
Meditate for 1 hour every day, exercise, keep your losses free. You will not be able to trade by taking too much stress. If you want to go deep into trading, first of all improve yourself, trading will improve automatically.
Conclusion
Revenge trading is dangerous for any trader, especially for new traders who do not know how to handle losses yet. From this article you will know what revenge trading is, how it happens and how to avoid it.
Remember only one rule in trading – saving capital is the most important. Profit will come later.
If you find this article helpful, please share it with your trader friends. Happy Trading!
