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 consuming a whole block of chocolate and then waking up in surprise that it is all gone.

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

It is as if I have the compulsion to keep punching myself in the face, over and over again, and do not know how to stop.

Prop trader, Trading Mind with Mandi

Anatomy of a Revenge Trade

This morning I got to my computer a little late, as I was stuck in traffic from dropping the kids off to school. I had scanned the markets and analyzed my top charts the night before, so I felt well prepared. I have had a great month so far, with 2 weeks of continuous profitable days. 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, 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. 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. From here on price just kept collapsing.

Instead of taking my 1% stop loss, I ranted at myself, squirmed in my chair, whilst at every sign of a bottoming pattern on the 5-minute chart adding another long position, hoping to average out the loss. It just got worse. I could feel my confidence waning and my frustration turned into paralyzing fear. I started calling myself all names under the sun.

I kept telling myself that I would get out at the next pullback, but it never pulled back. Eventually I was so over-leveraged that I could literally feel every tick like a sharp stab in my body.

The Pain of Regret

Now you have finally gotten out of this trade, either the broker made the decision for you or the pain of the loss became bigger than the regret and you finally managed to press that mouse button. Your thoughts are trapped, racing in your head, your heart is pounding and you are feeling almost sick. You cannot 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." And on and on we go, judging and berating and victimizing ourselves.

The next day my prop trader went back to the firm. He was disappointed and angry with himself, the ES and life. 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 at the top?

The trader's lament

If only I had taken the loss. If only I had stayed with my analysis. If only I had taken my profits. If only I had taken my losses when they were still small. This is the battle all traders fight within themselves. That is why, in order to succeed in trading, it is not only the markets we have to conquer, but mostly ourselves.

The Aftermath

Now my trader felt he needed to make the money back, quickly. But his confidence was thoroughly shaken up, his self-belief had 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 is relatively easy and with good mentoring, traders can speed up the process of becoming competent. Becoming an extraordinary trader who achieves financial freedom however comes from developing Behavioral Mastery: Behavioral 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.

The key to success is emotional stability.

Warren Buffett

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.

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

Emotional triggers in neurotic traders
Anxiety
8.5
Anger
7.8
Frustration
9.0
Depression
6.0
Hopelessness
7.0

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

3 Steps to Emotional Stability

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

  1. 01

    Assess Your Position

    Take one of the free Big Five personality tests available online to get an indication of where you sit on the neuroticism scale. Keep a journal for one month and every day rate yourself on a scale of 1 to 10 for anxiety, anger, depression, frustration, disappointment, and hopelessness. Note what triggered each feeling. Traders who frequently suffer from revenge trading are usually high in neuroticism.

  2. 02

    Step Into Your Power

    If you are high in neuroticism, you will most probably also be highly stressed. Learn how to manage your stress. What is it that you are afraid of? What are you trying to avoid? Traders who go on trading binges have not learned to self-soothe when they experience fear-based emotions. Every trader experiences fear. The differentiator is how quickly you snap yourself out of it and get ready for the next trade.

  3. 03

    Bring Out Your Best Self

    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. Think of a time you were really at your best, when you really amazed yourself. What strengths did you bring to life? What values did you live? Knowing that is your best self, how can you bring that into your trading from now on?

The core truth

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 profit triggers anger and frustration. The trader does not know how to self-soothe and snap out of the emotional rollercoaster. Everyone can learn to work with their emotions in an empowered way.

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