It is not uncommon for investors to lose money. Whatever investment you chose to invest your hard earned resource, you should have it at the back of your mind that you will either win or lose. So many traders do not have this knowledge which is why they practice what is known as revenge trading each time they lose a substantial amount of money.
In the light of the above, this article will explore what is revenge trading and also assert to the fact that revenge trading is a lose-lose situation.
The concept of revenge trading is more often than not informed as a result of doing something wrong. Revenge trading is a situation whereby a trader takes up an investment decision due to a particular loss he or she suffers previously. The loss from previous trade could make an investor more aggressive during the next investment.
Revenge trading is highly precarious on your account due to two major reasons. The first reason is that trading discipline would be thrown into the air. Revenge trading would focus all your attention on how you will recoup your losses, instead of paying attention to risk management and the trading process.
When you trade based on luck or emotions, you are not trading but gambling. When you do not have any risk management plan in place, revenge trading can bleed up your trading account in just a single day.
The second reason is that the drawdown that you didn’t plan for would be greatly deepened. For instance, if revenge trading makes you win, you will have the belief that emotion works when investing and then be enticed to practice it some other time.
There are several forms of revenge trading, but the most prevalent practice is a situation when investors make a bigger investment when they get their burnt with the hope that they would recoup the loss of money.
Below are other forms of revenge trading:
Michael lost $97 when he traded USD/JPY with $100. Despite the loss, he still believes his idea will make way for him. He immediately jacks up his stop a few hours later. At the end of the second trading, he lost another $250.
Mika, for instance, lost $50 when he traded USD/JPY. Frustrated by this lost, she immediately doubled the amount she invested. A few hours later, she made a profit. Mika recovered her initial $50.
Even though both Mika and Michael got different trading results, but they practiced revenge trading. Both of them disregarded trading practices in a bid to recover their losses.
Despite the effect of revenge trading, the good news is that there are strategies of recovering from revenge trading. Without further ado, let’s consider some of the strategies;
After a huge loss, clear your head and restrategize
Immediately you suffer a huge loss, stop all trading activities and concentrate on activities that are not trade-related. Once you have come to terms that losses are part of the trading process, you can then resume trading. This time, you would be more careful.
Record why you suffered the lost
When you identify and document the reasons for losing money, it will help you to focus on improving your next trading practice. This will further guarantee you that the market is not against your progress.
Place priority on your triggers
When you take not of those events that trigger you to practice revenge trading, it will greatly prevent from engaging in the practice again. For instance, do you practice revenge trading when placing huge amount? Do you chew gums or always in a rush? These and many more triggers should be taken note.
Put trust in your system
For instance, if you follow your trading strategies 100% but still suffers a loss, you won’t be much bothered because you are sure that you will win at the end of the day.
Practice risk management
As an investor, you need to form the habit of risk management. This will make you disciplined when you want to practice revenge trading. Failure to form the habit of risk management will make you be losing money.
Learn from professionals about Revenge Trading
The essence of learning from expert traders cannot be overemphasized. The reason is that you will learn from their previous mistakes. Research shows that most novice traders that have expert traders as mentors are usually successful traders.
With all the above-listed points, you will agree with us that revenge trading is a lose-lose situation.