One of the easiest traps to fall into when trading is so called, ‘revenge trading’. It’s the hot flush of anger some traders feel when they have a losing trade and it creates an immediate impulse to do something about it. The problem is that this usually makes the situation worse as you may have entered into a substandard trade that goes on to be another loser. This article will give three solutions to this problem.
How to stop the cycle
One way for intraday traders to stop this cycle is by setting a cap on what you can lose in a day. Then, once that cap is hit, you come back and trade another day. Some prop firms will have a maximum daily loss limit. If you exceed that figure then your desk is closed. They know the danger of revenge trading and want to eliminate the possibility from their trader’s minds.
Take a day off trading
Another solution would be to take a day off trading. Just by breaking any habit of constantly placing trades your can reduce the risk of revenge trading. You can’t place a trade if your platform isn’t open. So, you may want to limit your trading to only your desktop.
Limit your use of leverage
Revenge trading is often associated with risking too much and using too much leverage when you are trading. The third approach is by reducing your risk, you will also be much less likely to ‘revenge trade’. Revenge trading is often associated with larger losses as the emotions can run much higher when more is at risk.
So, by taking a day off trading, limiting your use of leverage, and setting a mental cap on acceptable losses you can help limit your vulnerability to the mistake of revenge trading.