One of the most common mistakes that Forex traders make is what is known as revenge trading. This occurs when a trader takes a position in the market out of anger or frustration rather than due to logical market analysis.
Revenge trading often happens after a trader has experienced a string of losses. In an attempt to get their money back, they will enter the market with an emotional state rather than a clear and concise trading plan. As you can imagine, this generally leads to even more losses being incurred. In this guide, we will take a look at what revenge trading is, as well as four reasons why Forex traders do it. We will also look at the four dangerous risks that come with revenge trading in Forex.
What is Revenge Trading?
As we have already mentioned, revenge trading occurs when a trader takes a position in the market out of anger or frustration. This type of trading is usually done without any type of logical market analysis and often leads to further losses being incurred.
One of the main reasons why revenge trading is so dangerous is because it can lead to a complete loss of capital. When a trader is angry or frustrated, they are more likely to make impulsive decisions that are not based on logical reasoning. This can often lead to them chasing their losses and eventually digging themselves into a hole that is very difficult to get out of.
Another reason why revenge trading is so dangerous is because it can cause a trader to miss out on good opportunities. If a trader is fixated on getting their money back, they may not be able to see other opportunities that are present in the market. This can lead to them missing out on profitable trades, ultimately making less money in the long run.
Four Reasons Why Forex Traders Do Revenge Trading
Now that we have looked at revenge trading, let’s look at four reasons why Forex traders do it.
1. Lack of Discipline
One of the main reasons why Forex traders do revenge trading is because they lack discipline. When a trader does not have a solid trading plan or strategy, they are more likely to make impulsive decisions that are based on emotions. This can often lead to them taking trades out of frustration rather than logical market analysis.
2. Fear of Missing Out
Another reason why Forex traders do revenge trading is because of the fear of missing out. When a trader sees the market moving in a certain direction, they may feel like they need to take a trade in order to not miss out on the opportunity. This can often lead to them taking trades that are not based on logical market analysis, ultimately leading to losses.
3. Overconfidence
Another reason why Forex traders do revenge trading is because of overconfidence. When traders are overconfident in their abilities, they may feel they can make up for any losses they incur. This can often lead to them taking impulsive trades that are not based on logical market analysis, leading to more losses.
4. Greed
The final reason why Forex traders do revenge trading is because of greed. When a trader is greedy, they may be more likely to take trades that are not based on logical market analysis. This can often lead to them chasing their losses and eventually incurring even more losses.
Four Dangerous Risks That Revenge Forex Trading Imposes
Now that we have looked at four reasons why Forex traders do revenge trading, let’s take a look at the four dangerous risks that come with it.
1. Risk of Complete Loss of Capital
One of the main risks of revenge trading is the risk of complete loss of capital. When a trader takes trades out of anger or frustration, they are more likely to make impulsive decisions that are not based on logical market analysis. This can often lead to them chasing their losses and eventually digging themselves into a hole that is very difficult to get out of.
2. Missed Opportunities
Another risk of revenge trading is missed opportunities. When a trader is focused on getting their money back, they may not be able to see other opportunities that are present in the market. This can lead to them missing out on profitable trades, ultimately making less money in the long run.
3. Increased Stress Levels
Another risk of revenge trading is increased stress levels. A trader constantly chasing their losses can take a toll on their mental and emotional health. This can often lead to them making even more impulsive decisions, ultimately leading to even more losses.
4. Wasted Time
The final risk of revenge trading is wasted time. When a trader is focused on getting their money back, they are not able to focus on other aspects of their trading. This can lead to them missing out on key information that could be helpful in future trades.
Three Ways to Avoid Taking Revenge in Forex Trading
Now that we have looked at the risks of revenge trading, let’s look at three ways traders can avoid it.
1. Develop a Solid Trading Plan
One of the best ways to avoid taking revenge in Forex trading is to develop a solid trading plan. A trading plan should outline your entry and exit criteria and your risk management strategy. A solid plan will help keep you disciplined and prevent you from taking impulsive trades.
2. Stick to Your Trading Strategy
Another way to avoid taking revenge in Forex trading is to stick to your trading strategy. Even if you feel emotional, it is important to stick to the rules you have set for yourself. This will help keep you from making impulsive decisions and ultimately lead to more profitable trades.
3. Take a Break From Trading
If you find yourself getting emotional about your trading, taking a break from trading may be helpful. This will give you time to clear your head and will prevent you from making impulsive decisions. Once you feel like you are ready to come back to trading, make sure that you stick to your plan and don’t let emotions get in the way of your decisions.
Frequently Asked Questions About Revenge Forex Trading
What is revenge trading?
Revenge trading is when a trader takes trades out of anger or frustration instead of logical market analysis. This can often lead to more losses being incurred.
Why do I keep getting emotional while trading?
There can be a number of reasons why you may be getting emotional while trading. Identifying the root cause of your emotions is important and working on addressing it.
I keep chasing my losses, what should I do?
If you find yourself chasing your losses, it is important to take a step back and reassess your situation. You may need to take a break from trading, or adjust your trading strategy.
Visit Decode Global and Learn More about Avoiding Revenge Trading
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