Revenge trading
Revenge trading is an emotional response where a trader deviates from their plan after a loss to recover funds quickly.
Revenge trading is an emotional response to a financial loss, where a trader attempts to recover lost capital by taking larger or more frequent trades. This often involves deviating from an established trading plan, increasing position sizes, or entering trades without proper analysis. The goal is to quickly recoup losses, but this approach typically amplifies risk exposure.
For a retail trader, revenge trading frequently leads to magnified losses, potentially resulting in a margin call or even account wipeout. It bypasses essential risk management principles such as fixed risk per trade or proper position sizing. This behavior can quickly deplete capital, turning a small loss into a significant financial setback, undermining long-term profitability.
Taught in these lessons
- The trading journal — Strategy & The Journal
- Process versus outcome — Psychology & Longevity
- Tilt & revenge trading — Psychology & Longevity
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