How to Stop Revenge Trading
Does this sound like you? You did everything right but the position goes against you. However, after you close your position for a loss, the market starts going with you and then you get piiiiiiised. You want to make your money back, money that you rightfully earned. All that work, down the drain just because of a small mistake.
Heck, it might not have been a mistake, it might have been entirely not your fault. Some random stop order hits, or your broker takes you out of your position on a technicality.
Whatever it is, you want what is rightfully yours. You want your money back. You want the prize you deserve. You want REVENGE!!
And then you lose even more money.
What is Revenge Trading?
Revenge Trading isn’t all that difficult to define. It’s trading that is meant to gain back what you lost in a short period of time. You are taking “revenge” for the loss the markets imposed onto you. Thus, your entire mentality is to take that money back, almost like punishing the markets for unduly taking your money.
This is the surface level understanding of “revenge trading.” However, there’s something deeper going on.
You know you shouldn’t be revenge trading. You know it doesn’t work. You know that it’s highly risky. You know you should be using your rational mind to make decisions on how to make more money. But why do you do it? Or the more interesting question is why do people do it? Why do people revenge trade?
Actually, let’s step aside and look outside of trading. Why do people want revenge in the first place? Even on a moral, ethical, and philosophical framework, revenge is not the best route to a happy and fulfilling life. Quite the opposite. Revenge eats you up inside and when you finally get it, it’s not all that satisfying. That’s what the prevailing wisdom of thousands of years of religious studies, story telling, and practical advice has given us.
If the above is not true and revenge truly helps people in the long-run, we’d find a lot more happy people who want or have acquired their revenge.
Revenge is really about being human and our desire for justice. You might be think I’m getting too philosophical on you. But work with me for just a small bit. It’s important to understand the relationship between humanity, revenge, and justice.
Being Human
You often hear “you can’t be human if you want to trade well” or something to that extent. There’s a belief that the best traders aren’t human, they don’t do human things, and humanity is the number one thing that prevents people from trading successfully.
For the most part, I can agree with the general idea that characteristics of being human prevent us from trading effectively. I’m partial to the psychological explanation of this phenomenon, namely, our cognitive biases (anchoring, outcome bias, pain of loss, etc.). However, when people say that humans can’t trade and you need to become a robot, that’s where I think a little more discussion is needed.
This is a very complex concept so let’s start with something that I hope is very obvious.
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You are Human
(I hope you are. If you are an artificial intelligence reading my article…Hiiiii! This may not apply to you. Unless you were programmed to behave like a human, then carry on…) -
If Humans cannot trade well, then you cannot trade well and there are no good human traders
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There are humans who trade well. In fact, you can be mentored by them here.
One of these have to be wrong because they contradict each other. Human traders exist. Therefore, the idea that “you cannot be human if you want to trade” is clearly wrong.
So what’s going on?
Let me explain it quite simply: People like to talk. They like to say things without reflection. And these ideas get tossed around and lose all meaning with further investigation.
There are humans who trade well. They exist. Paul Tudor Jones, George Soros, Stanley Drunkenmiller to name a few.
You might be saying, “oh, but those people aren’t human! They’re world class!!”
I would then reply, “Stop being an idiot,” as respectfully as I can.
Clearly these people are human. Clearly the mentors I talk about with the ITPM program are human as well. Clearly humans can trade.
So what are we talking about when we say that humans make bad traders. We’re talking about irrationality of human behavior being bad for trading. We’re not talking about being human.
The Need for Revenge and Justice
So we’ve established that you are human.
Now we need to understand humanity’s relationship to Revenge and Justice.
Being human consists of a lot of things. But I’m going to highlight something very specific for our purposes here. Humans are really great at creating large and giant social networks. Just take a look around at how humans joined together to conquer the world. Literally no other animal species can compete. We do it so well, we might be destroying the actual planet in the process.
Innate in our humanity is the desire to be part of a larger social structure. In order for us to survive in this social structure, we need to cooperate. We need to have rules of good versus bad behavior. Bad behavior needs to be dealt with quickly or else it can disrupt society in very negative ways. Good behavior should be rewarded.
At the core of our humanity is the desire for Justice because Justice is how we officially cooperate with each other in a social network.
Don’t believe me? Tell me which society you’d rather live in
A. The justice system is readily available. People are given fair trials and justice is dispensed swiftly. Rules and regulations apply to everyone equally
B. The justice system is broken. It is random and capricious. You never know what is going to happen.
I like to think most people would like the first. It’s obvious why. People literally flee their home countries to get a better justice system.
Now that we know what Justice is, what is Revenge and why is it so different from Justice?
Revenge is seeking justice on your own terms outside the societal norms.
If society is failing you, and you were wronged, then you will seek justice on your own terms through revenge. This is the classic case where a protagonist loses a loved one. They seek out revenge on the people who killed the loved one. Maybe they win, maybe they lose. It depends on how deep the script wants to be (think Kill Bill or John Wick).
Why is Revenge frowned upon and Justice is praised? Well if everyone took Revenge, we’d have absolute chaos like the wild west. There would be no law and order. Only the powerful would rule and society would be a very anxiety provoking place to live.
That is why Revenge is so debilitating. It pulls you away from the supports of society and doesn’t actually solve the problem.
But what was the problem? The loss…The Grief.
Getting back to Revenge Trading
At its core, Revenge Trading is about seeking justice on your own terms. Why? Because someone wronged you but there is nothing society can do about it. That’s why it’s not called “Justice Trading.” It’s Revenge because there are no mechanisms for you to seek recourse.
You made the trade. You lost the money. Maybe it was your fault, maybe it wasn’t. Who can you cry to? What options do you have? What else can you do to get rid of that pitting feeling inside your gut that you were wronged.
What else can you do to get rid of that feeling of loss?…The Grief…
If you think your only option is to trade, that is why you Revenge Trade. But what if I told you there was another way?
Forgiveness and Stages of Grief
Revenge trading is a loss just like any other. However, the reasons for the loss might be a little more skewed towards unfairness (injustice).
When we talk about Revenge, we necessarily have to have a loss. A great loss that meant something to us.
The wisest philosophers, thinkers, religious leaders of our time all agree that the best way to deal with Revenge is to forgive.
Forgive yourself for taking the loss. Maybe you were an idiot. Maybe you made a mistake. Maybe you took on more risk than you should have. Maybe none of it was your fault and it was someone else’s fault. Whatever it is, whomever it is, forgive them and forgive yourself.
It’s going to be okay. You can make your money back. But only if you let go and forgive the harm that was done to you.
However, forgiveness is easier said than done. And before forgiveness can be done for yourself, you need to take the time to grieve the loss first.
Remember this acronym for the Stages of Grief: DABDA
It stands for Denial, Anger, Bargaining, Depression, Acceptance.
The faster you go through these emotions and process them, the faster you can forgive yourself and others to continue trading correctly with a strong process.
Let’s go through the Stages of Grief as it relates to Revenge Trading
Stages of Grief: DABDA
Denial – You just hade a major loss. You’re in shock. You can’t believe it happened. How did you get here? Why? You don’t deserve this! You put so much work into the trade idea. You put so much time and effort into saving money to be able to trade. And now a huge chunk of it is all gone.
Anger – You are piiiiissssed. Who the hell do they think they are? Who am I talking about? All the idiots that caused you to lose money unfairly. All the situations and circumstances that brought you here. If there is a God, he shat on your face.
Bargaining – Maybe there’s something you can do. Maybe you can trade your way out of this. You’re a smart trader. You can just make the money back right now this instant. And we can pretend that it never happened. We can pretend this awful, random, undeserved horrific thing didn’t happen to your portfolio and you can go back to living life as you did just moments ago.
Note: This is where Revenge Trading happens. This is where you need to stop and start processing the next steps so you don’t destroy yourself in this phase. It’s okay to feel Denial and Anger at first. But you really need to not get stuck in the Bargaining phase if you want to avoid Revenge Trading.
Depression – There are two ways your story can go. Either you revenge traded your way to more losses, or you were smart, read my article, and skipped doing any trades while you were in the bargaining phase and accepted the loss. Accepted the sadness you feel.
It’s okay to feel sad about a loss. Money means something to people. That’s natural, it’s human, and it’s reasonable. If the answer to dealing with revenge trading is to “stop being human,” then something is really wrong.
Sadness is not a sign of weakness. Sadness is a sign of a fallen world. We live in a world where we need to consider trading to make money. Huge sums of money flow through the world and all people need to do is figure out a way to access it. And the ones with the best chance of making this money are the psychopaths with no emotions? Oh come on!
It’s okay to feel sad, to take the time to grieve. That is the only way you’re able to move onto the next phase.
Acceptance – This, my friend, is where you want to be after you suffered a great loss. The loss happened. And there’s nothing you can do about it. That’s okay. Learn your lesson. Don’t make the same mistake (if there was even a mistake in the first place).
If you had a well diversified portfolio, then the loss won’t destroy you forever. And if you didn’t have a well diversified portfolio, well then this is the big lesson and wake up call you need to have a well diversified portfolio when trading so that a single loss doesn’t wipe you out.
Take a breather. Grab as many lessons as you can as this loss is just tuition for the school of trading. Bolster your process so you don’t lose money like this again. Keep doing this over and over again and eventually, you’ll become a consistently profitable trader.
Bringing it all Together
I bet you didn’t think Revenge Trading would get so deep! If you take some time to process your emotions towards losses to eventually get to acceptance and forgiveness, I guarantee you’ll have less episodes of Revenge Trading.
But let’s summarize things:
Revenge Trading is about seeking Justice
Since you can’t get Justice in stock trading, you seek Revenge instead
To avoid Revenge Trading, you need to Forgive yourself and others
In order to Forgive yourself, you need to grieve the loss you experienced
Process your loss through DABDA – Denial, Anger, Bargaining, Depression, Acceptance
Avoid staying too long or taking action in the Bargaining phase
Profit from all the money you didn’t lose Revenge Trading. Take notes and lessons on your loss. Chalk it up to tuition in your journey to becoming a consistently profitable trader
Your trading psychology might be the deciding factor for your next BIG win or your next BIG loss.
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