And How to Beat it For Good
Levels of Revenge Trading
At first, you’re probably thinking, “Na, this doesn’t apply to me Mark.” But revenge trading might be playing more of a role in your execution than you think… There are levels to revenge trading.
Top-level revenge trading
You get stopped on a trade (or trades), get angry, and vow to get your ‘revenge’ on the market. Poor trades, no real setup, driven by red mist and a desire to ‘get back what you lost’ Many of us have been there before and it’s not a good place to be…
Mid-level revenge trading
Again, this is usually triggered by a stop-out or missed trade. (See triggers below.) But this time ‘mid-level’ revenge trading is still emotion-based execution. There’s a little internal voice driving those decisions. A voice that really shouldn’t be having any say!
Low-level revenge trading
This one creeps up on you. And it’s usually focused around one trade idea. You buy for a bounce and get stopped, you buy again. Stopped out by a few ticks. That’s when you probably should walk away, but no. You keep trying to force your trade idea onto the market and end up taking a load of small hits which turn into a decent R multiple. More than you wanted… That’s low-level revenge trading right there.
You can’t let it go, admit that perhaps the idea isn’t the best, or at the very least you are just out of tune with price. Instead, you keep fighting, wanting to prove you are ‘right’. It‘s a bad habit that many traders have. Maybe you do too? But all of these can be fixed.
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Fixing Revenge Trading
Firstly you need to identify where revenge trading could be creeping into your game.
- Are you taking too many bites at the same idea?
- Do you feel the need to ‘get your money back’?
- How serious is the problem?
Let’s say you identified that revenge trading exists in some form, now your job is to go upstream and work out what are the revenge trading triggers.
Revenge trading triggers
- Getting stopped
- Missing a fill
- Not being at the screen for a move
Anything that makes that emotion heightened and starts to urge you to deviate from the plan. It’s far easier to catch revenge trading before it kicks into gear and you are fuelled by emotion. So, work out what the revenge trading triggers are for you. Then put in strict rules to avoid going past the point that ignites that emotion.
Say you’ve identified that you have a low-level revenge trading issue.
And you’ve diagnosed it as occurring when you’ve been stopped out of the same trade idea more than once. It’s usually when the market is a bit choppy, lacklustre, and generally going nowhere. So, one fix could be to have a hard and fast rule. No more than 2 bites of the cherry. 2 stops on the same idea and you’re done.
Another could be more operational. If the ATR and volatility is low I will use a wider stop to accommodate the chop, meaning I’m having one bite but giving it a bit more room to breathe.
Simple and easy fixes.
Avoid the conditions that lead to revenge trading, and have a circuit breaker to get you away from the screen before you hit that emotional state.
Remember, boosting your P&L is often more about reducing the losers than it is about boosting the winners.