Ways to avoid revenge trading

In the fourth part of our series on common mistakes made by traders, I will discuss how to avoid revenge trading, the adverse effects of consecutive losses on our risk perception, and the negative aspects of trading in a virtual environment.

You should avoid revenge trading: It can lead to failure, resulting in consecutive losing trades, and you might think that taking more trades to recover your losses is the right move. But is it really? If you analyze many experienced traders, you will hear them say that revenge trading never brings profit. We can consider that the background of this statement is their own repeated experiences of trying it and discovering that it really doesn't work.

At this point, you may think that you are different, that you can achieve this, or that you will not lose control like others. However, you are probably falling into the "overconfidence bias" or the "illusion of control". It can be said that many people who engage in revenge trading are more open to emotional trading, succumbing to FOMO, and taking unnecessary risks because there is an amount that needs to be compensated. So, what can be done instead when consecutive losses are incurred?

The Importance of Taking Breaks

First of all, even if it sounds cliché, I definitely recommend that you take a little break. As long as you don't question why you made mistakes and why you kept getting stopped out, there is no reason for you to avoid making the same mistakes. Ignoring the problems in the middle will not make the solution appear by itself.

Secondly, during the break you've taken, participating in activities that will enhance your well-being, such as meeting with your friends, exercising, watching series & movies, etc. ( can provide you with a bit of breathing space. While constantly being in transactions can be exhausting, allowing your body to rest will enable you to return in a healthier way and manage your psychology. At this point, it may seem unreasonable for those who earn their living from here, but as long as you cannot earn money and continue to make the same mistakes, you will keep going backward instead of moving forward. Therefore, we should accept that sometimes it is much better to stand still than to go backward.

Regaining confidence by downscaling transactions

Finally, I want to talk about a tactic I apply during periods when I have consecutive losses. During such times, after taking a break for a few days and resting, I make sure to take the first few trades with half or a quarter of the amount I would normally invest. This way, I both confirm my skills and maintain my confidence, as well as check the functionality of my method. At the same time, in case I take a losing trade, I avoid shaking my balance by losing much less money.

You shouldn't squander the rest just because you lost some money: One of the patterns I've observed in some people is that after losing a large amount of money, they unnecessarily risk the remaining money by thinking, "I've already lost this much, so it doesn't matter if this goes too." However, if our goal is to be a trader, it would be a much better approach to focus on the overall picture rather than small losses and to assess the money we have for future use instead of squandering it.

Not falling into the spiral of errors

Let's recall a quote from James Clear that we will remember from the series I wrote about habit processes. "The first mistake that ruins you is never the first mistake; it must be the spiral of repeated mistakes that follows it. Missing something once is an accident. Missing it twice is the beginning of a new habit." When you are still at the beginning or in the learning process, we can say that how you build your feelings, thoughts, and behaviors in a general framework of your habits will determine how the process will progress. Let’s not forget that the brain tends to prefer familiar chaos over foreign peace. At this stage, what will determine whether what we feel familiar with is chaos or peace is no one other than ourselves. You must take responsibility for each of your actions and learn to bear the consequences. You should remind yourself that the process of change and development can be painful but also contains many beautiful things afterward.

Receiving transactions in a virtual environment can distort individuals' perception of money: We can now engage in transactions with just a single click through exchange applications. So, what psychology lies behind this? Firstly, many individuals from various fields, including psychologists, conduct detailed studies on "user experience )UX\u0026UI(, neuroscience, or persuasion" to shape individuals' behaviors and decisions. To illustrate with a simple and concrete example, studies are conducted on many different topics, such as the order in which products are presented to you when you enter a supermarket, which products will be placed at the checkout, and where products will be arranged on the shelves.

Avoid gambling operations

Exchanges operate on a similar logic as in this example. We tend to choose exchanges that are the easiest to use, have a user-friendly interface, can move quickly, and do not require too much effort before executing a trade. Along with the advantages of everything being so easy, there are also disadvantages. Firstly, being able to participate in a trade with a single click can lead us to act impulsively or in the moment. The possibility of being able to execute a trade without going through a decision-making process before entering a trade can make individuals not perceive the money they have invested as 'real', and exchanges attracting individuals through 'bonuses' can lead to a tendency towards gambling-like transactions.

Are losses just "the numbers on the screen"?

Secondly, I think many people lose their perception of money over time. As individuals start to earn money and grow their wallets, the amounts lost can be quite large after a while, yet they may not create any feeling. I believe this existing situation may stem from hedonic adaptation and the rise in risk thresholds. I had a friend who lost about 30,000 dollars as an individual experience, yet he wasn't trembling. Rationally speaking, losing such a large amount of money should upset him, even drive him to despair, but when I asked him how he felt, he said, "I only see numbers on the screen."

Finally, the perception of profit is being distorted as much as the perception of money. One of the biggest mistakes I made at the beginning was to underestimate transactions where I made a profit of 5-10%, as if I should have made 50% or more in a single transaction. However, the percentages of 5-10% are already very good. The allure of profits like 5x-10x-50x seen in crypto has led many to suffer losses without being able to sell their holdings at the end of the bull run. You should evaluate your profits with a realistic perspective and realize them in a planned manner; otherwise, the result will be disappointment.

This article does not contain investment advice or recommendations. Every investment and trading activity carries risk, and readers should conduct their own research when making decisions.