What Is Revenge? How to Recognize and Avoid Traders' Psychological Traps

Revenge Trading - The Psychological Trap When Trading Cannot Be Avoided

Revenge trading (also known as trading revenge) is a phenomenon where traders, after suffering significant losses, continuously make impulsive trading decisions to recover the lost money. Instead of following their original plan, they let emotions dominate, leading to a series of wrong decisions. This is one of the most common psychological mistakes traders face, especially beginners.

How It Works: From Losses to Impulsive Actions

When a trader experiences a significant loss—possibly due to unexpected market events, incorrect forecasts, or poor risk management—the feelings of anger and frustration quickly take over. Instead of pausing to analyze, they feel an urgent need to recover everything immediately.

This behavior manifests through clear signs:

• Sudden increase in position size: Traders will boost their trade size to “cover losses” quickly, regardless of market signals
• Ignoring technical indicators: Instead of relying on market analysis and established risk management rules, they focus solely on regaining money
• Accepting higher-than-normal risks: Trades are chosen based on higher probability of winning rather than the original plan

A typical example: After witnessing a market decline and losing a large amount of money, a trader decides to bet against the trend in hopes of immediately recovering the loss. However, if the market continues to fall—which the indicators had actually warned about—this trader will only incur heavier losses.

Serious Consequences of Revenge Trading

The impact of revenge trading is not limited to finances:

Financially:

• Accumulated losses: Instead of recovering, the account continues to decline
• Increased trading costs: Higher trading frequency leads to escalating fees
• The account could go bankrupt if not stopped in time

Psychologically:

• Prolonged stress and anxiety
• Loss of confidence in one's trading ability
• Feelings of failure that may cause traders to give up or become exhausted

How to Prevent Revenge Trading from “Eating Your Lunch”?

If you notice yourself tending toward revenge trading, consider:

• Setting strict stop-loss thresholds: Predefine that if the account drops to a certain level, you will pause trading to analyze again
• Switching to a long-term strategy: For beginners or those facing difficulties, long-term investing is a more stable choice, helping to avoid the temptation of short-term trading
• Applying trading discipline: Stick to the original plan regardless of gains or losses

Revenge trading shows that trading is not just a technical activity but also involves emotional management. Only when traders learn to control their emotions can they truly succeed.