The Revenge Trade

I mentioned revenge trading in the the sixth paragraph of [Epic Fury] Part 9. Today I want to fully discuss the concept.

Google AI defines revenge trading as an impulsive, emotionally driven behavior where one attempts to quickly recover from a significant loss by entering new, often larger, trades without a clear strategy. The behavior is frequently compared to going “on tilt” in poker, where frustration replaces logic and leads to reckless decision-making.

Breaking it down further, revenge trading:

• Is motivated by anger, fear, or a desire to “beat the market” rather than objective analysis.
• Increases risk by doubling or tripling position size to recoup losses faster.
• Involves taking consecutive, “rapid-fire” trades without waiting for valid setups.
• Typically ignores predefined risk management such as stop-losses and trade plans.

Psychologically, revenge trading may occur for a few different reasons:

• Pain of loss may be felt twice as strongly as joy of equivalent gain creating urgent biological need to “fix” the situation.
• Ego leads traders to feel personally slighted by the market with a subsequent desire to prove being “right” rather than admitting a mistake.
• Gambler’s fallacy is the mistaken belief that a big win is “due” after several losses.
• The illusion of control means taking any action, even a poor one, feels better than sitting helpless with a loss.

If revenge trading becomes a continuing problem, then the trading plan should be altered to prevent it. Incorporate mandatory cooldowns by physically walking away from the screen after a loss to reset the mind. Institute daily loss limits where action is halted after reaching a specific dollar loss or number of [consecutive] losing trades.

Journaling can help by tracking emotions felt during revenge trading to identify personal triggers. In thoughts and writing, make an effort to shift focus away from daily PnL to strict trade plan adherence. As with sports, sometimes the other team is just better that day but sticking with a well-thought-out plan puts the probabilities in your favor.

I believe this was my version of revenge trading. I don’t feel slighted or angry, per se. I do feel a need to act quickly and get on with a new plan that will recoup the losses and maintain the gradually upsloping equity curve. I don’t really think so much—it just becomes my [automated] mission in the moment and I may not process all relevant details (e.g. ignoring the red flags discussed in Parts 9 and 10) before moving forward.

The current instance of revenge trading robbed me of the volatility opportunity discussed in Part 7’s fifth paragraph.