How To Stop Revenge Trading

One topic that is the common cause of frustration and failure among traders is the “Revenge Trade”, the action of “going on tilt” as we call it in professional circles. I call this “Binge Trading”, because the experience of going on tilt is similar to mindlessly ravening a whole block of chocolate and then waking up in surprise that it’s all gone… just like that.

Revenge Trading is one of the most complaint about trading mistakes, and any trader who has experienced the subsequent feelings of frustration, anger, and disappointment, know how debilitating it can be for one’s trading career.

In my experience, this is one of the main self-sabotaging patterns that eventually lead to failure as a trader, or as one of my traders described once: “it is as if I have the compulsion to keep punching myself in the face, over and over again and don’t know how to stop”.

Anatomy of a Revenge Trade

Following is the story of an US Trader who recently went full time daytrading the ES.

“This morning I got to my computer a little late, as I was stuck in traffic from dropping the kids off to school. But I thought I was well prepared, as I had scanned the markets and analysed my top charts the night before. So, on my way to the office I started formulating my trading plan for the day.

I have had a great month so far, with 2 weeks continuous profitable days and so I felt confident and happy because it was my best performing month so far. I took my first trade right at the opening and it went straight into profit.

The thing about the ES is that the morning price action is usually quite strong and directional. But suddenly price started stalling and even though my target was far higher with the stalling price action I started doubting myself and wondered if I should take my profits and run.

So I took my profits and the ES after a little pause, picked up and continued to run – without me..

I could feel the frustration creeping up, why did I give in to the pressure and get out? Why was I so weak? Determined to make up for it, I jumped right back into the trade with double the contract size, and of course I bought the top tick and from here on price just kept collapsing.

To make things even worse, instead of taking my 1% stop loss, I did the opposite: I ranted at myself, I squirmed in my chair, whilst at every sign of a bottoming pattern on the 5 min chart adding another long position, hoping to average out the loss.. but it just got worse, I could feel my confidence waning and my frustration turned into paralysing fear. I started calling myself all names under the sun.

I kept telling myself, that I will get out at the next pullback, but it never pulled back. I knew I had to exit this trade, but I just couldn’t get myself to press that mouse button and so instead of exiting I mindlessly added positions, promising to exit at the next breach of the support level, but then just helplessly watching my account balance evaporate with each flush down. Eventually I was so over-leveraged that I literally could feel every tick like a sharp stab in my body.. it was so painful..

Also, because my trade was based on my impulsivity, jumping into the trade for fear of missing out fuelled by the frustration of having exited too early instead of letting my trade plan play out, I didn’t really have any clarity around when to exit my losing positions. Like a dog with a bone I was stubborn keeping adding to the wrong bias fighting myself and the tape instead of switching my bias and going with the flow.”

The Pain Of Regret

Now you finally got out of this trade.. either the broker made the decision for you or the pain of the loss has become bigger than the regret and you finally managed to press that damn mouse button.

Your thoughts are trapped, racing in your head, your heart is pounding and you are feeling almost sick to your tummy. You can’t sleep.. the self-berating gets worse.. “How could I have been so stupid” “When will I stop doing this?” “I know how to trade, I am a good trader, if only I could stop this one behavior!” “I am such a loser” “I feel so stupid” and on and on we go judging and berating and victimising ourselves until we fall into a restless sleep dreaming of wild priceactions and blowing up accounts.

If only …

The next day my prop trader went back to the firm. He was disappointed and angry with himself, the ES and life. It’s just not fair he kept thinking .. I know how to trade, I am a good trader, why do I keep going on tilt and destroy all my profits when I am so close to success?

When he went over the botched trade from the day before, he wanted to slap himself… it all seemed so clear now, why on earth did he buy when there was such a clear reversal pattern right on the top? Why did he keep adding to his long positions, when the patterns he read as reversal patterns are clearly continuation patterns? How could he been such an idiot?

‘If only’ is what traders utter a lot.

  • If only I had gotten taken the loss. I should have gotten out when I first thought about getting out.

  • If only I had stayed with my analysis and let the trade run into profit target rather than micro managing.

  • If only I had put more size on. I should be more aggressive.

  • If only I had taken my profits. I should stop being so greedy.

  • If only I had taken my losses when they were still small

  • If only …..

This is the battle all of us traders fight within ourselves. That’s why, in order to succeed in trading, it’s not only the markets we have to conquer, but mostly ourselves.

The Aftermath

The story didn’t end here.. now my trader felt he needed to make the money back, quickly. But his confidence has been thoroughly shaken up, his self-belief has taken a big hit, and he was so plagued with self-doubt that no trade looked good enough to enter.

Developing the skill of trading, whilst of course it takes a few years depending on your already pre-existing skillset and mindset, is relatively easy and with good mentoring, traders can speed up the process of becoming a competent trader.

Becoming an extraordinary trader who achieves financial freedom however comes from developing ‘Behavioural Mastery’: Behavioural Mastery starts with a high level of self-awareness of your strengths and weaknesses, developing emotional intelligence, training to make fast decisions, building resilience, mental toughness and cognitive dominance.

Warren Buffet’s Key to Success

Warren Buffett famously said “You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ….The key to success is emotional stability”.


What is emotional stability?

When I as a coach assess the emotional stability of a trader, the scale stretches from extreme neuroticism to highly emotionally stable.

Emotional stability refers to a trader’s ability to remain stable, calm, focused and able to think strategically even in the face of uncertainty and challenges. At the other end of the scale, a trader who is high in neuroticism easily experiences negative emotions that are setting the trader up for self-destructive trading behaviours such as revenge trading.

The thing is that every trader experiences those emotions, and the difference between long term successful traders and failing traders, is how quickly a trader is able to snap themselves out of this self-destructive emotional spiral.

Traders who score high in neuroticism are very emotionally reactive. They will have an emotional response disproportionate to the event. For example, I have seen traders for whom a $200 loss is enough to trigger revenge trading, self-berating and feeling defeated, whilst they may be happy enough to spend $200 on a weekend dinner and drinks out with friends.

They are feeling threatened, find it difficult to think clearly and cope with stress. My definition of stress is “Not getting what you want” or “Getting what you don’t want”.

When you are high in emotional stability, you have more control over your emotions during a trade, you will be able to focus on the task at hand and stay clear minded and have access to logical thinking under uncertainty and pressure.

Traders with low emotional stability are distracted by social media too easily, crumble under pressure, are affected by other people’s opinions, personal challenges, and general pressure and are not able to perform at optimum throttle.

3 Steps to Emotional Stability

If you want to stop Revenge Trading in it’s tracks, you must start attending to your emotional wellbeing.

Step 1: Assess where are you on the scale between neuroticism and emotional stability?

You can do one of the free ‘Big Five’ Tests freely available on the internet to get an indication of where you are at on the scale.

At the same time keep a journal for about 1 month and every day rate yourself as on a scale from 1 to 10, how much and how often you experience one of the following emotions:

  • Anxiety                                    1 – 2 – 3 – 4 – 5 – 6 – 7 – 8 – 9 – 10

    I feel this way, because _________________________________

  • Anger                                      1 – 2 – 3 – 4 – 5 – 6 – 7 – 8 – 9 – 10

    I feel this way, because _________________________________

  • Depression                             1 – 2 – 3 – 4 – 5 – 6 – 7 – 8 – 9 – 10

    I feel this way, because _________________________________

  • Frustration                              1 – 2 – 3 – 4 – 5 – 6 – 7 – 8 – 9 – 10

    I feel this way, because _________________________________

  • Disappointed                          1 – 2 – 3 – 4 – 5 – 6 – 7 – 8 – 9 – 10

    I feel this way, because _________________________________

  • Hopeless                                1 – 2 – 3 – 4 – 5 – 6 – 7 – 8 – 9 – 10

    I feel this way, because _________________________________

Traders who frequently suffer from Revenge trading or similar self-defeating trading behaviors are usually high in neuroticism. If that is you, don’t worry, simply proceed to step 2.

Step 2: Step into your power and start working on your emotional stability

If you are high in neuroticism, you will most probably also be highly stressed, or even struggling with life in general. If that is you, there is some work to be done so that you can make it a rewarding trading career.

Learn how to manage your stress. What is it that you are afraid of? What is it that you are trying to avoid happening?

Traders who go on trading binges, just like binge eating or drinking, have not learned to self-soothe when they feel fear based emotions. Every trader experiences moments of fear, disappointment etc, it is how quickly you can snap yourself out of it, look forward and get ready for the next trade, that differentiates the quality of a trader, how quickly you recover from setbacks.

I worked with a trader who used to have 3 days of binge trading.. we worked on reducing .. it became just 2 days.. we celebrated the progress, he started filtering for how he did well, his strengths, his skillset, then it became only 1 day of binge trading.. and now this behavior has been eradicated.. with celebrations each step of the way.

Step 3: Bring out Your Best Self

This is a very powerful way of thinking: Rather than focusing on how you failed again and how you are not enough, pick one skill to improve and start focusing on your progress.

How can you become the most successful version of yourself? What I found with a lot of traders who are high in neuroticism, they ‘suffer’ from a negativity bias that tend to mostly filter in seeing ourselves at our worst, so we can beat up on ourselves.

It’s really important to start shifting the mind away from negativity bias and start tapping into that part of the brain which is us at our best.

  1. Think of a time you were really at your best, when you really amazed yourself and you’re so pleased with how you conducted yourself.

  2. How do you know you were at your best? What were the strengths you brought to life or the values that you lived? What is it that led you to know that that was you being at your best?

  3. Knowing that is your best self, how can you bring that to life in your trading from now on?

In Summary ..

The problem with Revenge trading is not the revenge trade itself. The problem is that the trader is in a weak mental state to begin with and one loss or missed out profit triggers anger, frustration etc and the trader does not know how to self-soothe and snap out of this emotional rollercoaster.

If you suffer from binge trading, there is a little bit of work on yourself to be done. Don’t give up, because everyone can learn to work with their emotions in an empowered way.



Mandi x