Revenge Trading is a label typically placed on trades done without the usual trading plan, but instead a trade done based on “it looks good” or “it could work” without any real edge. Especially when we first start trading, we often fall into the trap of getting mad when we take a losing trade or a string of losing trades and we’re behind the proverbial 8 ball.
It also happens when we start seeing missed opportunities which we could have been a part of, thinking “the next one that shows up, I’m going to make and make what I could have made” all in that NEXT trade.
When you start to think about trading as if being a scrawny or obese person entering into a workout program, they aren’t going to start showing muscles in the first days or weeks of being in a gym.
The same can be said for being a successful trader by which once we start DELETING the days trading activity (or prior hours) and entering into the subsequent session without the temptation of a desperate move, we then begin to eliminate one of the biggest cancers a trader trying to build up a portfolio base can become stricken with: The Revenge Trade.
How Did I Get Here
Done usually done after a loss with a desire to win back the money, the “angry trade” is the worst possible trade you can make. There are several reasons it’s so bad:
- It’s often not planned out properly – you haven’t properly considered exit points and analysed the risk.
- Quite often it’s a larger bet than the first one since you’re so desperate to win back as quickly as possible.
- It’s an emotional trade that’s done for the wrong reasons and without calculating the potential pitfalls.
The best way to avoid this from ever happening (again) is to first identify why you have discipline problems and then resolve them since someone that revenge trades usually has other trading related issues due to a lack of discipline. Hey, we’re all human and none of us are perfect, but identifying one’s flaws and working on ways to convert them into attributes will help a trader to develop a better self which will find its way into your trading habits, making them better ones.
If you don’t know what’s causing those discipline problems, you could get the best trading advice in the world and still keep revenge trading on a consistent basis which usually winds up with the “blowing up” of one’s account: $0 Balance.
Forget Getting Mad – Get Even
Losing trades are a normal part of any good trading strategy. Any trader or investment guru that says they don’t lose is one you should run as far away from as possible: i.e., iHub Board Moderators. In any case, emotions are going to be connected to the losses, making you feel like you are a poor trader, like you will never make it as a trader, that your system doesn’t work, or even worse: that the markets are rigged against you.
Revenge Trading is, most often , a desperate attempt to silence all those negative voices in your head with one huge, resounding win. The catch: The Revenge Trade never works. Even worse is that IF the stars align and the Revenge Trade does work out, you think you have a way to counteract any losses in the future and learn to rely on it as a “backup plan.”
So the first thing one that wants to be successful at trading needs to do is to take all of our emotions, most especially the negative ones, and “leave them at the door.” Instead of getting mad, get even and get your money back the right way.
Divide & Conquer
Let’s assume you made a crap trade and lost $3,000 (pick any number you want that fits your historic loss, recent loss or portfolio size). Instead of thinking that you need to make that $3,000 back in one or two trades to “cover your losses,” break it down into 10, or even 20 trades and watch what happens.
First thing you think is “$3,000 divided by 10 trades is $300 a trade – seems like too much work for such small rewards.” Let’s make it even more applicable to a new trader whereby the loss was $500 and dividing it over 10 trades would mean just $50 profit per trade. $50 profit per trade sounds too small right? Wrong approach.
What happens during the course of this “get back your money” method is not that you “only made $300,” but rather that you made 10 SUCCESSFUL TRADES which has made you a better trader. Take it one step further and break down the loss incurred over 20 trades and you just graduated metaphorically from an elementary school with no books or desks to a top level university in terms of your ability and knowledge base.
This is one of the reasons why the 32 Trades Concept is a useful key in designing one’s path to wealth as it has the numbers broken down in advance to help as a guide. Take the loss and the emotion out of the equation, and break down a realistic trade total to, both earn back what was lost, and gain a priceless education by doing so.
If you really want to take things to the next level, think of each trade you make as the launching of the Space Shuttle. If the conditions surrounding the launch are not 100% perfect, i.e., the kids are running around the house, my boss has me in and out of meetings, the internet is acting weird today, DON’T TRADE.
The markets aren’t going away and that 200% or 2,000% runner is not the last runner that will ever occur. Preparing a succulent steak should be done when the pan/grill is at the perfect temperature when you put the meat in/on to cook – the same goes for your conditions when trading.
When you consider the 32 Trades Concept, sure it takes 32 “30%” scenarios to take $1,000 and turn it into $1,000,000 profit over that period, but what is overlooked is how that $1,000 builds a portfolio worth over $5 Million in the process. Is Revenge Trading really worth the risk and effort?
Unless your trading a stock or option contract mid-long term, it takes a colossal amount of concentration to day trade well and a vast knowledge of the product being traded. Collect as much information as possible, ask as many questions as possible, and stalk the product to understand its patterns. This common pursuit by most all successful traders seeking an investment into something they are not so familiar with is a key factor in avoiding the repercussions of a trade not working out the way it was supposed to.