How Does Revenge Trading Happen And How To Avoid It?
The natural response of someone who lost a hard-earned possession is to get it back at all cost. You strive so hard to take your possession back while losing so much of your time. You are determined to never cut slack on the ‘Forex market’ for taking something that is yours. That is how impulsive some traders can be. Revenge trading is very common and it is one of the major reasons for losses among Forex traders, particularly newbies in the market. If you don’t want to end up doing revenge Forex trading, you should check out these facts;
Identifying What Triggers Revenge Trading
There are different trigger points from one person to another. It is either an analysis that has gone wrong or a loss of a huge amount in one trade. There are also traders who are not comfortable with a loss of profit. In this case, the first thing you can do to avoid revenge trading is to study your previous behavior. Know the things that you need as a trader. Know yourself as a whole. Do you have a journal that allows you to check your previous trades? How can you define a losing trade? Are you able to easily cope with losses? If you are doubtful and unsure of the answer to these questions, take some time to breathe and clear your thoughts. Use this time away from the market, to clear your thoughts and your emotions before you join the market once again.
Identifying the Root Of Failures
If you have a trading journal, it would be easier to identify the things that you’ve missed. Where did you go wrong? Or is it the market that turned tides? Is your strategy the one to be blamed? Seek answers to these questions as this will measure your performance as a trader.
Testing the Strategy
Another common mistake of new traders and some experienced traders is not testing their trading strategy before they use it in the live market. Hence, you must test it in a strategy tester so you can patch up all the possible loopholes. Remember that a new trading strategy comes with a new batch of risks that might not pan out your expectations which may trigger emotions of revenge trading.
Check your Risk Management Plan
Another thing to consider to avoid the string of losses that leads to revenge trading is the risk management plan. It should be the one saving you from all those failures but could also be the culprit of failures. It is therefore important to revisit your risk management plan and check if it is the cause of your losses. For newbies, it is advisable to always stick to the 1:3 rule, 1:2, or 1:1 risk to reward ratio.
Your Personal Life May Also Trigger Revenge Trading
The tendency is, when a trader’s life falls apart, he also suffers from a blown-up career. Even the simplest fights with your spouse or your friends can impact your mindset and frustration is inevitable. Therefore, it is important to avoid Forex trading if you feel desperate or frustrated to avoid firing up your stress level.