Trading Mindfully: Letting Go of Revenge for Financial Success

18 giu 2023

Sometimes the market can really wear us down mentally and emotionally. Imagine this scenario: you enter a trade feeling confident, having carefully considered and calculated everything. You're in a fantastic mood, already envisioning the profits. And then, unexpectedly, everything goes wrong.

In moments like these, even if you have a solid system and strategy in place, anger and resentment can take over. You might feel the need to seek revenge on the market for what you perceive as an injustice, and impulsively open positions with the intention of punishing it. However, the outcome of such revenge trading is almost always regrettable, resulting in significant financial losses.

Let's take a closer look at what revenge trading entails and why it is so dangerous.

Revenge trading occurs when we believe that the market has taken "too much" from us or treated us unfairly. Instead of stepping back and regaining composure, traders act contrary to every rule and guideline, driven by anger and a desire to prove themselves.

Fueled by a mixture of frustration and determination, traders tend to fall into one of two scenarios: they either open large positions that further amplify their losses, or they manage to recoup some of their losses if luck is on their side. However, the best course of action in such situations is actually to take a break and reflect on the situation at hand.

Attempting to take revenge on a market that is infinitely more powerful than any individual trader is inherently irrational. Moreover, this type of trading has several other negative consequences.

When you trade out of revenge, you are driven by emotion rather than logic and strategy. This approach is destined to fail and can result in even greater losses over time.

At this point, you lose touch with reality, forgetting everything you know and have learned about the market. Your well-thought-out strategies and trading algorithms that used to bring you profits are abandoned.

Effective money management and risk compliance become distant thoughts. You throw all your resources into the blazing fire of revenge.

As a result, you find yourself trading based on intuition, which is no longer a disciplined approach but akin to gambling.

How to Overcome the Urge for Market Revenge

There is a simple yet crucial mechanism that can help traders overcome the desire to seek revenge on the market. The most challenging part, however, is remembering to apply it in practice. Here are some steps to follow:

1: Take a Step Back: When the desire for revenge arises, it's important to slow down your emotions and actions. Step away from the computer and engage in activities that involve fine motor skills, such as solving puzzles or engaging in a hobby. It's detrimental to continuously look at the screen that displays recent losses, as it only amplifies your emotional state. By diverting your attention to non-trading activities, you allow the frontal cortex of your brain, responsible for rational decision-making, to activate. Going for a walk or connecting with a friend can also be effective ways to shift your focus and regain composure.

2: Analyze the Situation: To regain a conscious state and process your emotions, conduct a written analysis of the situation. It's beneficial to do this manually on a plain sheet of paper, utilizing your fine motor skills once again. Describe the entire incident in detail, including your thoughts, emotions, and actions. By gaining a comprehensive understanding of what threw you off balance emotionally, you'll be better equipped to recognize and control those triggers in the future.

3: Evaluate Your Trading Strategy: Every trader relies on a specific algorithm or trading system to make decisions. Take the time to thoroughly examine your trading system and ask yourself some important questions:

- Does your trading system genuinely work?
- If you had followed your system entirely (which you didn't do when seeking revenge), would it have helped minimize losses?
- Are the losses that angered you a result of system losses or a breach of the system's rules?
In addition to studying your trading system, it's crucial to assess your money management rules and ensure you are effectively managing risks. Proper risk management acts as insurance, protecting you from substantial losses. Regardless of market fluctuations, you can confidently close trades when necessary. Effective risk management is what distinguishes profitable traders from those who suffer losses.

Final Thoughts:
To overcome the desire for revenge, it is essential to understand what triggers it and address the underlying reasons. When we view the market as a reflection of our self-image and attribute personal meaning to our trades, it often leads to an emotional storm. In such a state, we may disregard trading systems and risk management principles, making foolish mistakes that can devastate our trading accounts. It's important to remember that the market provides only factual information for analysis, and behind the price quotes lies nothing more than information.