Why You Should Stop Revenge Trading
What is Revenge Trading? Causes, Countermeasures, and Why You Should Avoid it at Fundora
Table of Contents
2. Causes of Engaging in Revenge Trading
3. How to Avoid Revenge Trading
Have you ever experienced entering a trade based on different judgments than usual, feeling emotional and wanting to "make up for" a loss when trading?
That is the behavior called, revenge trading.
This behavior is not only common among beginners but also among traders with some experience, and it causes many losses.
Especially in environments like challenge-based prop firms, where a consistent trading attitude based on rules is questioned, revenge trading becomes a significant risk that directly leads to evaluation decline. Fundora emphasizes this emotional control ability.
This article systematically explains the definition and mechanism of revenge trading, as well as its countermeasures and long-term effects.
1. What is Revenge Trading?
Revenge trading refers to engaging in the next trade immediately after suffering a loss, driven by emotion and lacking composure.
It is characterized by ignoring trading rules, dominated by feelings of impatience and anger such as "I must get it back this time."
In many cases, the position size becomes larger than usual, and risk also increases.
When the market doesn't move as you expected, the reaction can easily lead you into a negative spiral where losses further accumulate.
2. Causes of Engaging in Revenge Trading
Behind revenge trading, the following psychological and environmental factors are often hidden.
- Heightened emotions: Emotions such as anger, anxiety, and impatience cloud judgment. It is especially easy to lose composure immediately after incurring a loss, leading to judgment errors.
- Difficulty accepting losses: If you proceed to the next trade without being able to "accept" the loss, you tend to take excessive risks as you cannot process your emotions.
- Overconfidence and optimistic expectations: Believing "I'll win next time" or "I can recover" can lead to taking large positions, which can conversely accelerate losses.
- Habitual reaction: In some cases, the behavioral pattern of "immediately recovering losses after a defeat" may have become ingrained unconsciously through years of trading.
- Market instability: When volatility is high, impatience and anxiety can trigger a stronger tendency to take positions reflexively.
3. How to Avoid Revenge Trading
To avoid being swayed by emotions and maintain calm judgment, the following measures are effective.
- Decide on trading rules in advance: By setting clear rules beforehand, such as entry/exit criteria and maximum acceptable loss, you can prevent emotional judgments.
- Develop an awareness of accepting losses: Losses are a part of trading. It is important to view the growth of your capital from a long-term perspective without panicking over a single loss.
- Conduct regular reviews: By utilizing a trading journal and visualizing in which situations you were swayed by emotions, you can make concrete plans for the next time.
- Observe changes in emotion: Noticing "I might not be calm right now" makes it easier to avoid revenge trading. Develop the habit of stopping trading temporarily if you feel strong emotions.
- Temporarily suspend trading: Especially after suffering a large loss, deciding "not to trade" can sometimes be the best strategy. Taking a break helps regain perspective.
4. Long-Term Negative Impacts of Revenge Trading
Revenge trading has a serious negative impact on trader performance and psychological state, beyond short-term losses.
- Collapse of money management: Due to positions deviating from the usual lot size, the equity curve rapidly deteriorates
- Decrease in self-efficacy: Repeated failures can easily lead to the establishment of a thinking pattern like "I cannot win."
- Loss of reproducibility: Frequent trades deviating from strategies and rules render improvement and learning ineffective.
- Cause of prop evaluation disqualification: In prop firms where consistency is evaluated, such emotional trading immediately results in a negative evaluation.
Preventing revenge trading not only protects your capital but also contributes to protecting your credibility and future as a trader.
5. Summary
Revenge trading is a dangerous behavior performed in a state of losing composure and being dominated by the emotion of wanting to "get it back immediately."
For traders aiming to become professionals, the ability to suppress such emotional trading and make judgments with consistency and logic is subject to evaluation.
- Recognizing your emotions
- Calmly accepting losses
- Continuously adhering to decided rules
By thoroughly implementing these three points, you should be able to protect yourself from the temptation of revenge trading and build stable trading skills in the long run.
Graduate from "emotional trading" to "strategic trading."
That is the first step towards becoming a professional trader.