3. Revenge in Trading Psychology
Revenge is another perilous emotion that obstructs trading success. Revenge trading usually takes place when traders try to make more aggressive trades, especially after experiencing losses.
Whereas the primary intention of revenge trades is to try to win back the losses, it often results in more losses than initially intended. Revenge traders often blame the market for their losses and end up placing retaliatory and miscalculated trades.
Revenge trading is harmful because of three main reasons. First, since it’s usually not planned well, it leads you into making hurried trades that are less likely to be profitable. If you engage in revenge trading, you will be gambling and not trading. You will speedily place trades without any planning or comprehensive analysis.
Secondly, because you become desperate to recoup the losses, revenge trading forces you to open trades with larger position sizes. You will ignore the risk management part of your trade plan just because you want to win back the losses quickly.
Lastly, it is an emotional trading habit that’s driven by the wrong motives. It changes your focus from rational trading decisions to emotions-driven trading choices. Your emotions cloud your thoughts and make you throw discipline and sound mind out of the window, which bleeds your account—pip by pip.
For example, you can enter a long order on EUR/USD, but you end up losing 50 pips. Frustrated, you decide to double your position size on the next trade so that you can recoup your initial loss. However, the trade goes contrary to your expectations again, causing further damage to the trading account. It will be easy to open an even bigger position now, because the market “owes” you money and you want to take “your” money back.
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