If you’ve been trading for a while, you’ve probably experienced a couple of few trades spectacularly blow up in your face. Perhaps you recognized one of your go-to patterns, validated the trend, and entered at the ideal time, only to watch the stock plummet for no explicable reason.
Nobody anticipates losing money when they execute a transaction, but some losses hurt greater than others, particularly when you go back and see that everything you did was correct.
When a trade goes bad like this, it’s crucial to take a step back and exhale slowly.Go for a stroll, buy a coffee, and scream at your computer, but don’t immediately start another trade.
When emotion grabs the wheel and pushes logic to the side, “revenge trading” occurs. Overtrading out of rage is a terrific way to begin accumulating losses.
What is Vengeance In Trading?
When a trader experiences a significant loss, revenge trading is a normal and emotional reaction. After a significant loss, they immediately enter another trade without pausing to consider their next move or review their approach.
The goal is to bounce back quickly from the setback. It is believed that by placing another trade, one that is anticipated to be profitable, the losses might be swiftly made up for.
Markets, however, are difficult to forecast. Therefore it seemed highly possible that the anticipated winning trade would really end up losing. just a little bit bigger than the one the trader is attempting to recover.
What is the motivation behind revenge trading, and why do traders use it?
This irrational behavior is motivated by a variety of emotions, including wrath, fear, embarrassment, and greed, and it’s likely to have struck every trader at some point throughout their trading career. Yet, revenge trading is not just practiced by novice traders.
Even some experienced traders and professionals can fall victim to this tactic. Due to this, revenge trading is much more illogical.
The negative effects of revenge trading have been attested to by trading coaches who have interacted with traders of all skill levels.
The majority of the time, traders that use revenge trading double or triple their trading position in the hope that their next deal would be profitable.
Greed and rage
A trader may engage in a deal without thinking after suffering a significant loss since their decision-making is primarily motivated by their anger (at the markets) and greed.
Yet, the trade will typically swing against them and the trader will incur a greater loss.
Shame and dread
Some traders find it easier to immediately enter a revenge trade than to face and accept a loss (especially a significant one).
The desire to get past a loss might also be motivated by the anxiety of confronting friends, family, or coworkers who will learn of the loss. Saving face is a major motivator for many traders, especially if they are known for being successful traders who win the majority of their trades.
Five Tips to Prevent Revenge Trade
You may stay away from revenge trading by doing the following.
1. Always follow your plan
If you continuously follow your trading plan, there is very little likelihood that you will try a revenge trade. Trading in accordance with a tried-and-true trading strategy should only end in the outcomes you anticipate, or at the very least, a level of consistency that will keep you in the game for a very long time. So, a loss would only reduce your wallet balance by an anticipated percentage. Furthermore, your profits would fall inside the anticipated range.
Humans naturally desire to make up for losses as soon as possible, but doing so in the market can be risky and result in losses. Only predefined circumstances that you must have specified in your trading plan should be used to execute trades. Any deviation from that causes you to lose discipline because nothing is directing your decision-making.
With a decent system, the odds will work in your favor, so trust it and don’t worry about the losses.
2. Develop Loss Acceptance
Trading doesn’t have a golden standard. Having a tested trading technique and using it with good risk management is the golden standard. You can approach the cryptocurrency trading market more effectively if you acknowledge that, no matter how successful your trading plan, you will experience periods of loss.
To account for the possibility that a losing trade could turn around, you don’t need to move your stop loss. While it guarantees you don’t lose more than the amount you have planned, the stop loss should be present to help you exit transactions that are already going against your plan.
3. Keep Trade Records
You’ll become a disciplined trader if you keep a journal of your transactions. You can determine whether you are trading in accordance with your plan and discover why you are performing each trade if you keep a log of your trades.
Recording your trades will aid you learn from your blunders because they will also be documented. so enabling you to better manage setbacks and errors.
4. Take a Trading Pause
One strategy to prevent revenge trading is to take a break from trading. After a string of unsuccessful trades, you might need to give it some time. Taking a break enables you to determine what went wrong or whether the market was simply being the market
5. It’s Part of the Game to Lose.
Many of the most knowledgeable and successful traders experience poor days and weeks. Losses do not always indicate that the market is working to your disadvantage or that your system is flawed. You have no control over the volatile cryptocurrency market. Trading should be your primary focus, within the parameters of your trading plan and approach and as you see fit.
You had to back-test your strategy over time in order to have confidence in it. Your confidence in a plan is increased by its track record. As a result, when you go on losing streaks, you understand that the market is simply being the market and that losses are an inevitable aspect of trading.