Trading mistake#5: Revenge trading
Beware taking revenge on the markets
Revenge is one of the most poisonous emotions we can feel, acting on it brings a cycle of destruction into our lives in life and in trading. However, whereas a person may not take revenge in their general day to day living, they may do when it comes to trading. So, this next article is designed to help us recognise and stop revenge trading. Here are three situations when we are more likely to seek to get revenge :
- Immediately after a losing trade. Your stop was hit by 1 point overnight after which price soared in your desired direction. You are furious and incredulous in equal measure. When you are angry after a losing trade. Depending on your constitution you express your anger, either a clenched fist that bangs the desk, a revised eyebrow, or maybe merely the increase of tour heart rate. Regardless of your temperament you are ticked. You scan the news feeds furiously looking for another trade. You find one and you are stopped out. You are even angrier, and you increase your leverage and take another trade. You get the picture.
- After a period of drawdown. Mentally you were prepared to accept X% of drawdown. Then that X% of drawdown is exceeded. You are angry, disappointed and frustrated. You feel that you have let down your family, your fund, your loved ones. You feel a failure. You read an internet troll who insulted your reasoning, called you a son of a donkey and, horror of horrors you actually believe him ;-). You now think , well what does it matter I may as well max out the leverage and try and make it back on one big all or nothing trade. You have mentally crumbled and believed a tissue of lies that is leading you to to lose discipline, focus and perspective.
- Due to stubborn pride. Well, it went like this. Let's imagine a hypothetical example. You had this public argument on a forum with a trader humbly calling himself , 'Forexgenius 789' .He called you a 'dirty rat' (shock, horror) because you were shorting the EUR/USD pair. It created a small ripple on the forum and two other people 'liked his comment'. One of whom was a guy whose AUD/USD position you questioned three months ago. You gave four reasons to short the EUR, all of which made sense, but 'Forexgenius 789' says only chumps short the EURUSD pair and that you are ignorant, naive and probably are a born loser (you see 'Forexgenius 789' is a natural encourager and the life and soul of the party). Of course, he never comment on our site ;-). The problem is that, this time, he is right. You are the wrong side of the trade and you did miss a critical part in your analysis. You are not a 'dirty rat', nor are you a born loser. However, you are wrong on this occasion. It happens to every trader. Now, you know that you should immediately close your position when you know you are wrong.However, you don't. You hold on out of pride. You keep arguing with 'forexgenius' about your position. This is stubborn pride an it can trigger a waterfall of revenge trading. Don't be proud. Be humble. Take the loss, learn the lesson and let 'Forexgenius 789' have his moment in the sun and make a note to yourself, not to goad him next time he takes his turn in the rain'