Sometimes the market exhausts us mentally and psychologically. For example, you open a trade in full confidence that you have thought everything through and calculated. You are in a great mood, and mentally you are already distributing the profits. And then this happens. At moments like this, even if you have a working system and strategy, there is anger and resentment. You begin to take revenge on the market for the offense and open a position in the desire to punish it. But the consequences of such trading are always sad - it leads to the loss of a significant amount of money. Let us analyze what revenge trading is and why it is dangerous.
What Is Revenge Trading
We take revenge on the market the moment we think it has taken "too much" money from us or treated us unfairly. But instead of taking a step back and settling down, traders, on the contrary, rush into the market and do so in violation of every possible rule and prohibition. Filled with anger and determination to prove to the market who's number one, traders fall into one of two scenarios:
- They open a large position, which increases their losses;
- Compensate for some of their losses if they're lucky.
But the best strategy, in this case, is to take a break and reflect on what's happening.
Why It's Costly To Take Revenge On The Market
Trying to take revenge on the market, which is a million times stronger than any single trader, is insane in itself. But this kind of trading has several other side effects. You trade based on emotion rather than logic and strategy. It will never work and, over time, can lead to even greater losses.
At this point, you lose touch with reality, and everything you need to know and remember about the market flies out of your head. You will forget any strategies and algorithms of trade which brought you profit.
You won't even think about effective money management and compliance with risks. You will throw all the resources into the fire of revenge. As a result, you will begin to trade intuitively, and this is no longer trading, but gambling.
How To Overcome The Desire To Revenge The Market
There is one simple mechanism that will help the trader overcome the desire to take revenge on the market. But the hardest thing about this scheme is to remember to apply it in practice.
Take A Step Back
Taking a step back means slowing down your emotions and actions, trying to put out the fire in your head. Step away from the computer, and better at all leave the room and do something related to fine motor skills, such as collecting puzzles. The most harmful thing to do in this state is to look at the terminal screen, which says how much money you have recently lost. This will only sway your emotional state. Switching to another activity works very well, and fine motor skills activate the frontal cortex of the brain, which is responsible for making rational decisions. You can go for a walk or call a friend. The main thing is to divert your attention from what just happened.
Being able to switch quickly and put your thoughts in order is a useful skill for a trader. In order to deal with your emotions, you need to get out of the situation. By shifting your attention to non-trading activities, you are doing just that.
Analyze The Situation
Another way to deal with your emotions is to get feedback on the situation so you can return to a conscious state. Do a written analysis of what happened. Better if you do it by hand (and again, fine motor skills of your fingers) on a plain sheet of paper. Describe the entire situation in as much detail as possible, including your thoughts, emotions, and actions.
Once you understand what situations have thrown you off balance emotionally, it will become easier to see them in the beginning. In doing so, you need to learn not just to recognize the triggers, but to control your actions at that moment.
Doublecheck Your Trading Strategy
Every trader uses a certain algorithm of market evaluation that helps to make decisions. We call this algorithm a trading system. In order to understand what caused a loss, you need to carefully examine your trading system and answer a few questions.
Does your trading system really work?
If you had followed your system to the end (which you didn't do when you were trying to get back at the market), would it have helped minimize the losses? Are the losses that made you angry the result of system losses or the result of breaking the rules of the system? In addition to studying the trading system, you need to figure out your own money management rules and understand if you are following the risks.
Effective risk management means that you have some kind of insurance, which will protect you from big losses. Regardless of what happens on the market, you will be able to calmly and confidently close the trade when it is necessary. Proper risk management is what separates those who make money from those who lose.
Final Thoughts
The best way to deal with the desire for revenge is to understand what makes you want to take revenge on the market and to get to the bottom of it. When we begin to see the market as a reflection of our self-image and give trades a personal meaning, it always triggers an emotional storm. In such a state, we can forget any systems and principles of risk management. As a result, we get into a flow of silly mistakes that can completely destroy the trading account. It is important to remember that the market offers only facts for analysis, and behind the figures of quotes there is only information, and not something more.
