So you’ve had a bad trade. Maybe you got taken out of a trade right before the market turned your way, or you just lost money on a trade you felt confident in. It’s only natural to feel angry after a bad trade; sometimes, resisting the temptation to get revenge on the market can be challenging. After all, if you can just get back at the market for what it did to you, everything will be okay, right? Wrong.
Revenge trading is one of the biggest mistakes traders can make, and it can quickly lead to disaster. This post will discuss revenge trading and how to avoid it!
Why Do We Revenge Trade?
Revenge trading occurs when a trader takes a position in the market that is not based on sound analysis but rather on emotions such as anger or frustration. This can often lead to traders making impulsive decisions that are not in line with their goals or risk tolerance. As you can imagine, this can quickly lead to significant losses.
In options trading, for example, revenge trading occurs when a trader takes a position in response to a loss rather than based on an analysis of the market. This can result from emotional reactions such as anger or frustration, leading the trader to believe they can win back their losses by making impulsive decisions.
However, this often leads to further losses, as the trader does not consider important factors such as price momentum or technical indicators. As a result, revenge trading can be a dangerous temptation for options traders, and it is essential to avoid letting emotions dictate trading decisions.
Why Does Losing Feel Worse Than Winning?
Losing trades often feels worse than winning trades because they can result in capital loss. This can be difficult to stomach, especially if the trade was made with leverage. In addition, losing trades can lead to an emotional response, cloud judgment, and lead to impulsive decisions.
When a trader is angry or upset after a losing trade, they may be tempted to take revenge on the market by placing an immediate trade in the opposite direction. This is known as revenge trading, one of the most common and costly mistakes traders make.
Revenge trading often leads to impulsive decisions, resulting in even more losses. In addition, revenge trading can lead to over-trading, further depleting capital.
How to Avoid Revenge Trading
Anyone who has been trading for any time has had the experience of seeing a trade go bad in a hurry. It can be very frustrating, especially when you’ve done everything right. There are a few things that you can do to try to avoid having your trades go wrong.
Use a Stop Loss
Always use a stop loss. A stop loss is an order you place with your broker to sell your stock if it reaches a specific price. This price is usually below the current price, so if the stock starts to drop, you will sell it before it falls too far.
Lock in Your Profits
Don’t be afraid to take profits. If a stock starts to rise quickly, sell some of your shares and lock in your profits. That way, even if the stock does fall back, you will have made some money on the trade.
Get Out and Cut Your Losses
Don’t be afraid to admit when you’re wrong. If a stock is not behaving as you thought it would, get out of the trade and cut your losses. It’s better to lose a little bit of money than all of it. By following these guidelines, you can help to avoid having your trades go wrong.
Take a Break
It is crucial to take a step back and assess your trades objectively. If you frequently enter trades out of anger or frustration, it might be time to take a break from trading. So, step back and take a day or two off. This will help you clear your head and return to trading with a fresh perspective.
Do a Self Assessment
If you find yourself in a situation where you are tempted to revenge trade, then it is vital to have a plan in place. Write down your reasons for taking the trade, and stick to your plan. Remember, the goal is to make money in the long run, not to get revenge on the market!
Assess Your Trading Strategy
When looking at your trading strategy, it is essential to ensure that it is still valid. If you have been losing money, it might be time to reassess your strategy. Are you following your plan? Are you sticking to your stop losses and taking profits when available? By reassessing your strategy, you can help to avoid making the same mistakes over and over again.
Assess the Markets
When looking at the markets, it is vital to be objective. Take a look at your charts and assess the market conditions. Is there a clear trend? Are prices moving in a particular direction? Being objective can help avoid making impulsive decisions that are not based on sound analysis.
Apply Your Trading Plan
Another way to prevent revenge trading is to have a solid trading plan. A trading plan should outline your goals, risk tolerance, and entry and exit points for trades. Having a plan in place can help avoid making impulsive decisions that are not based on sound analysis.
Set Realistic Expectations
Revenge trading is a dangerous game that can quickly lead to large losses. If you find yourself tempted to revenge trade, take a step back and assess your trade objectively. It is also important to have realistic expectations regarding the markets. Remember, the goal is to make money in the long run, not to get revenge on the market!
Summary: Revenge Trading
Revenge trading is a dangerous game that can quickly lead to significant losses. If you find yourself tempted to revenge trade, take a step back and assess your trade objectively.
In addition, the best way to avoid revenge trading is to have a plan before entering a trade. This plan should include an exit strategy to take emotions out of the equation. Furthermore, it may be helpful to use a practice account so that you can experiment with different strategies without putting your capital at risk.
If you feel angry or upset after a losing trade, resist the temptation to take revenge on the market. Remember, impulsive decisions can lead to even more losses. Instead, take a step back and focus on your long-term goals. You can avoid the pitfalls of revenge trading with a clear head and a solid plan!
Lastly, it is also essential to have realistic expectations regarding the markets. Remember, the goal is to make money in the long run, not to get revenge on the market! By following these guidelines, you can help to avoid having your trades go wrong.
Maurice Kenny has helped over 600 people become financially free through one-on-one coaching, mentorship, and options trading strategy. Many of these new traders are now full-time traders, and they all started by watching his 1-hr webinar.
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