Revenge Trading

“The actual charts and trading are the easy part. The mental and emotion part that’s tied to options trading — that’s the hard part.”

This is a line I constantly try to keep in the forefront of my mind, especially when things just seem to not go my way.

There are days when trading stocks and options are an emotional roller coaster, sometimes leaving you higher than you have ever felt, while others taking you to depths you didn’t know existed, especially for something that you may consider just a hobby. 

Whether you are a new or seasoned trader, one thing can be certain, you have made a bad trade.

Sometimes, you do not see that it was a bad trade right away, and other times, you know within five minutes. And depending on your risk management style, maybe you let it run, or maybe you cut it immediately, either way, your P&L seems like it is screaming at you RED RED RED.

So, you jump in another trade, you do not wait for your rules to be checked off, and you probably do not wait for that very last confirmation that you need to be certain that it’s a good trade, you just know you need to quiet that RED alert in the back of your head. But now, you are in the midst of back-to-back bad trades. Again, you either let it run, or you cut immediately. But now, it feels like there is a RED weight pressing down on you, along with the RED alert flashing, and you scour to find a trade to make up for the loss. 

This is something that most traders will experience.

The REVENGE trade.

We just know that if we could just get a little green, we will be able to make up for the trades that went against us. The worst part about a revenge trade, is they usually end up blinding you to the point of ignoring all the warning signs, or worse, your very own rules.

This happened to me today. I jumped in a bad trade, broke my rules, and then made the most egregious mistake that I could. When I finally caught a good trade out of revenge, I held too long in hopes to make up what I lost, and (you guessed it) ended up losing that one.

I was completely blinded by revenge, that I risked most of my account, instead of taking profit and lessening the blow. 

So, what are some things I should have done instead of revenge trading? Well, when I lost the final trade, I just walked away from the computer. I should have done that when I lost the first two.

One thing we should all have is a limit to the amount of money we are willing to lose in a single day. When we hit that number, turn the computer off, go for a walk, spend time with the family — whatever you need to reboot.

Second, when you feel as though you are disregarding your rules, again unplug or switch over to your paper account. Our rules are our edge, we need to stick to them at ALL costs. 

The mental and emotional part is hard to wrap around sometimes, but to be successful we need to be able to recognize when we lose control of that aspect and find a way to recenter. The market is not going anywhere and there will always be another trade.

Take a day, a week, or even a month to regain your composure. Your account will thank you. 

Brick by Brick

--- S.