Many traders are their own worst enemies when it comes to their success as they tend to turn their losses into anger and frustration that leads to revenge trading. In this article, we will discuss what revenge trading is, why it is so devastating for day traders, and most importantly, how to overcome it and stop revenge trading once and for all.
What is Revenge Trading?
Revenge trading occurs when a trader tries to recoup their losses from a bad trade by immediately entering another position without a clear strategy or plan. They react emotionally rather than rationally, seeking to make up for their losses as quickly as possible, often resulting in more significant losses, spiral their anger and frustration, causing irreversible damage to their trading account.
Why Revenge Trading is so Devastating for your Results?
Revenge trading spells the disaster for your trading account. Trading is a high-risk game, and minute fluctuations in the market can turn a profitable trade into a loss. The losses are a natural part of trading and the cost of doing business for traders. The problem begins when traders fail to manage their losses appropriately, get too emotionally attached to the market, or don’t follow their trading plan or strategy when market events affect their trades.
How to Stop Revenge Trading?
Revenge trading can be hard to overcome, but with dedication and a long-term perspective, it is possible. The following are some of the most effective ways to stop revenge trading:
Take Breaks: When experiencing losses, it is essential to take a break, clear your head, and only return to trading when you are feeling calmer and more grounded.
Have a Trading Plan: A trading plan is essential in any trading strategy. Having a trading plan helps to develop an objective set of rules and establish clear and measurable goals essential to lower your risk and keep your emotions under control.
Manage Your Risk: Managing your risk is another effective way to stop revenge trading. The rule of thumb is to limit your risk to 2% or less of your trading account on any given trade.
Reduce Your Trade Size: Another way to control your risk and reduce the damage of revenge trading is by reducing your trade size. You should only risk a small percentage of your account on any single trade.
Practice Discipline: Finally, practicing discipline is vital to become a consistently profitable trader. You need to recognize and manage your emotions; not allowing them to control your decision-making process.
Revenge trading is a negative and destructive behavior that can ruin even the most successful trader’s career. Traders must learn to accept losses as part of the business and keep their emotions in check. The tips we have highlighted above can help you break the cycle of revenge trading and move forward with more discipline, focus, and clarity to become a successful trader. Remember, trading is a long-term game, and your success is not determined by one trade but rather by your overall trading approach and discipline.