How to avoid Revenge Trading

By | April 12, 2013

Infosys did it again, 22% down Many traders lost a fortune few made a good money. Traders who have lost money due to big gap down in stock will not make Emotional trades to recover lost money asap and the account is destroyed fast. They will involve themselves in revenge trading, as they are in fight with the “Mighty Market” to recover their losses and end result will be trader will be thrown out of  market. When it comes to crazy trading, it is a serious problem. You do not even realize that you are doing this. So, you need to use the right technique to get out of this state.

Let me discuss fee thoughts which will help in avoiding revenge trading:

1. Take a Break

When you have experienced successive losses, you should quit trading for few day. Some traders even have a “punishment” that is assumed by a trading plan: had loss, no trade for a week! Market will not disappear and tomorrow have even more opportunities for you. Do not do anger trades, just take a breath and give yourself a break.

2. Shorten Size

Shorten the size of amount traded considerably. In such a way you will be able to distract your mind of trading for a while and become sensible again. Give yourself time and get back to the right size trading only when you are really ready.

3. Add Amount You Lost

If you experienced a loss, you can add to the amount you have lost back to the account. You will be surprised at how easy it can become normal again when you do not see your account with losses. But before you add the money promise yourself you will not indulge in riskier trades or any trade against your trading plan.

4. Use Visual Effects!

Create a poster or make a note which can remind you of not making unreasonable decisions after bad trades. The note will help you to stay sensible and take only the trades that you can completely understand and pass on all the rest.

5. Trade With Reason

Psychology is a critical factor that influences success or failure in trading. You should have the right psychological reasons to do trades.

6. Write down your losses in your trading journal

What made you take the trade, Were you aware you can loose so much.. Was it a black swan event which caused such big loss. Brainstorm yourself and try to come to a conclusion. Reviewing your trades is an important trait for a trader.

 

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