Curse of The Revenge Trader

February 2, 2019 | 6:16 am | The 5%ers' Blog > Magazine
February 2, 2019 | 6:16 am
The 5%ers' Blog > Magazine
Curse of The Revenge Trader

While it may sound like the newest superhero saga to appear in the Marvel Universe, the Revenger Trader is anything but a hero.

On the contrary, revenge traders are to be feared and avoided. They are traders who fail to admit when their trades are going towards a loss or who refuse to accept that they’re losing and missing their daily goals. These anti-heroes have a very negative sense of failure and generally, want to overcompensate. Look yourself in the mirror and ask yourself – “Am I a revenge trader?”

In an effort to compensate, the revenge trader will almost always chart a course that is propelled by emotions. In an industry where trading plans and preparation are the keys to sustained success, the emotional impulses are always a misguided way.

When the revenge trader settles into the losing mentality, every time they lose, they try to fix it immediately, leaning heavily on emotionally driven responses and reactions, less on analytical or methodical thought processes. In this heightened emotional state, the revenge trader loses their sense of professionalism and resorts to trying to compensate for their losses through the use of poorly thought out force.

Know the Warning Signs

The most important thing for traders to know regarding this syndrome (revenge trading), is that it’s very common. As mentioned above, it’s an emotional state that just about any trader might fall into without the proper warning and avoidance systems in place. Once aware of these pitfalls, the next thing a trader has to do is know how to avoid them. If for some reason, a trader knew about revenge trading but couldn’t avoid falling into its grasp, they need to cut their feelings and recognize their unhealthy footing in their portfolio immediately.

Let’s say, for example, you’re suffering a sequence of losses and you’re going away from making your daily goal and you’re really stressed. Take a step back and ask yourself “am I getting into an emotional state where it’s of the utmost importance that I make up all of my losses as quickly as possible?” if the answer is yes, you might be infected with the revenge trader syndrome. Our professional advice is to stop everything and make it quick.

If you’re in it, you’re probably the type of trader who would fail to admit that you’re capable of taking losses. You might fail to understand that the market doesn’t care about what you’re doing. Trying to succeed in the market might have become a stronger impulse than following the market prudently and making reasonable decisions based on what you study.

Most importantly, your concept of losing trades is equivalent to failure. Know that taking losses according to your plan is not a failure. Persuade yourself that this is the right way and you can’t force yourself. In case you missed it, here is a great guide for how to embrace such a mental state.

Not all revenge traders are created equally though, as there are several types of trading that can happen while in the revenge state.

Type of  Trading that Occurs While Under the Influence of Revenge Trading

  1. Trader overtrades and forces trades and analysis. This breed of revenge trader becomes very impulsive, and without proper analysis, changes direction enters the same position at different prices and suffers more losses.
  2. The no loss cutting revenge trader. In this archetype, instead of cutting losses and trying to regroup according to a sound investment plan, the revenge trader might hedge the trade. Since it’s on this list, you can probably tell it’s a bad idea, but we’ll say it anyway – this is a bad idea. When traders do this, they postpone the real decision making of when to resolve their trade. This leads many traders to get confused and ultimately stuck without the ability to recover. At one point you’ll have to get rid of one of the hedge sides and the loss at the time of the initial hedge will remain no matter where the market ultimately ends. Avoid hedging, it’s almost never a viable solution for recovering a loss.
  3. The most reckless of all revenge traders is perhaps he or she who instead of exiting a loss, holds the loss and buys a position at a preferred price. They will average a better entry price but this is a misleading strategy because since the market goes in zig-zags, it will actually get you on a break-even. By doing so and succeeding to get out of this situation, you’re being deceived and threatening detrimental effects to your career. Many times it will be in your favor and you break even, however it only takes one time that it doesn’t and you’re so heavy on the other side, you’ll fall incredibly quick and hit your end of the road margin call and break the account. It’s a tremendous amount of work for a ridiculously quick account crash.

How to Manage If You’re Infected with The Revenge Trader Syndrome

If you recognize that you’re a revenge trader, as we’ve mentioned, first know it’s undeniably bad for your portfolio. From there you can try to deal with your mental state. Work on how to not be like this. Coach yourself into not allowing yourself to ever get into a position in which you might mutate from a sound mind into a wild revenge trader. It’s a dangerous emotional state that only grows the more you try to impulsively react against it. Trading in an emotional state will always open you up to abuses from the market and only a focused and well-reasoned trader can avoid getting knocked out by the market.

Try to get yourself back to a focused, analysis based trading style. If you can’t, take your losses and just stop. Losses are not a failure, remember! Go back to the drawing board and rewrite your trading plan.

Keep the focus on making reasoned decisions. If you can’t, take the day off and come back fresh at a later date. Being a revenger trader will devastate your trading and can never hold over a long term trading manner. Help spread awareness and let’s beat this syndrome/curse once and for all!



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