You may have come across the term revenge trading as you have researched forex trading and educated yourself about the different aspects of trading. Revenge trading is a very dangerous mistake which many new traders fall victim to. Inexperience is the primary source of revenge trading. An inexperienced trader is not prepared for all possible outcomes when they place trades and then need to react once their trade is live.
What is revenge trading? Revenge trading is the emotional reaction of a trader after facing a trading loss. Many new traders experience a negative emotion and feel the urge to recover their loss immediately and in the same currency pair. Once their stop loss level has been reached and they have faced a trading loss revenge traders enter the same trade again without analyzing their trade. In the worst case they will increase the lot size in order to not only recover losses, but still come out profitable.
Revenge trading is one of the fastest ways to deplete your trading account regardless of your experience as a forex trader. So what should you do after you are faced with a trading loss in order to prevent revenge trading? The first step should always be to walk away from your trading platform in order to let emotions cool down. Some traders need a few moments, a quick coffee or some fresh air while others may need a bit more time. This is for the individual trader to determine.
It does not stop there; once emotions have been allowed to cool down it is very important for forex traders to return to their trading platform. The second step is to analyze the trading loss. There is plenty of information from a loss, but many new traders allow their emotions to block this vital data. Understanding why a trade was closed for a loss will help the trader to better the strategy and reduce losses. Forex traders need to always work on improving their approach.
Revenge trading does not only accelerate losses for forex traders it also robs them of an opportunity to learn. Revenge trading has never yielded positive results as it boils down to luck which has no room in a trader’s vocabulary. The primary reason revenge trading does not work is that the trade was lost for a reason: the analysis was wrong. Throwing more good money at a bad trade is a terrible mistake which will only add to losses and frustration. Avoid revenge trading at all costs!