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Consequences of Forex Revenge Trading
Written by: PaxForex analytics dept - Wednesday, 05 September 2018 0 comments
The best forex traders are the ones who can control their emotions and detach themselves from their toxic emotions during their trading activities. Most traders feel the excitement, pride, and joy when they are successful, but they feel drained, depressed, and incompetent when they have bad trading days. When traders suffer several large losses in a short period, they tend to “revenge trade”, with the mindset they will turn their current losses into profits. However, their state of mind isn’t objective anymore, and so they keep making basic trading mistakes, again and again, losing more money.
Revenge trading commonly occurs after a trader experiences a loss, especially if it is greater than what he could usually handle. Many market players commonly enter revenge mode after a trade, which they were sure will be successful, goes wrong causing the loss of money. As they get agitated, inexperienced traders will try to make up for the scored losses by jumping straight back in the market. However, because the decisions they are about to make will be based on emotions, it is very likely that they will fail and probably lead to a greater loss than the previous one.
Emotional trades in forex happen often, and whenever trader losses the control, the account gets wiped out fast. Even with a reliable trading strategy, strict discipline and good money management it is easy to become emotional after making bad choices. Increasing the lot size to make it
back, moving stops, averaging down, creating excuses to continue trading, look for opportunities that are not even there. The biggest problem of all is when it comes to revenge trading, you don’t even know you are doing it.
When these traders go on to place this ridiculous next trade, they are so overwhelmed by their own emotions, that they don’t base that trade on solid market analysis. Neither do they properly consider the risk attached to the trade. Most of the times, this trade is so over-leveraged, that it exposes an enormous portion of the trader’s equity. Now because this trade is often placed impulsively and in a hurry, it is usually a really bad trade. The win ratio of typical revenge trades is really terrible. Consequently, the large majority of traders who get snared in this trading style blow their accounts at some stage.
Trading is both physically and mentally exhausting. Every now and then, traders need to step away from the computer screen and clear their minds, especially after a frustrating loss. Some may suggest studying new material or thinking up different strategies, but an even better idea would be to switch to an activity completely unrelated to trading. Think about what would make you feel refreshed and ready to get back into the game. Something as simple as taking a short walk may do the trick.