Tino from TradersReality.com writes about the psychology of a trader. In this post for TraderLife, he discusses something that most traders have experienced on their trading journey: revengeful trading.
What is revengeful trading?
As with anything in life, if something belongs to you and it's taken away from you, you then develop a belief system that dictates that you are to seek and claim back what is rightfully yours.
So if you are using your mobile phone and someone rushes up to you and snatches it from your hands, you have every right to challenge the thief and take back what is yours.
Many new traders experience a bad loss and they most likely say one of the following statements:
- "That was my hard earned money, I want to make it back."
- "I don't deserve to experience this loss, what have I done wrong, I'm not a bad person."
- "That is not fair, my entry was fine, what did I do wrong to lose my money? My account is now low, I have to trade to earn it back."
To be honest with you, I have said them to myself many times. It is only natural, during the transition of developing your trader's psyche, to ask yourself the above questions when something goes wrong with your trading.
Seek and You Shall Find
Revengeful trading is like an infection, once it spreads, it will attack every element of your mind that maintains rational thinking. So how do we develop the habit of revengeful trading?
This post is not designed to promote how to become a revengeful trader, however highlighting the habits of behaviour that occur creates awareness to traders that may or may not have experienced revengeful trading.
Unfortunately, revengeful trading is like becoming old. It will happen one way or another. However, in trading we can teach ourselves to avoid developing the habits that create the psychological behaviours which trigger revengeful trading.
What You Should Be Aware Of
It is in every trader's interest to pay close attention to their behaviour when they are experiencing difficulty in trading. I will share with you the habits I developed that created a mindset to be revengeful in my trading.
1) My motive for trading when I started out was money. I wanted to experience the lifestyle of the Wolf of Wall Street; who doesn't want to have the luxuries of making huge amounts of money and buying anything you desire. So every trade I made, I had the vision of making thousands.
2) When things went wrong, I would blame my methodology. I would even blame my internet connection, thinking that a delay in the trade execution caused me to not get the right price.
3) I would start to get angry if my position was not going in my favour. I would average down and convince myself that price would eventually return. I developed the habit of thinking that one way or another, price would return so I would sit through the drawdowns. I mean hey, I was convinced it's what the pros do...
4) There were times where I would become so frustrated with the markets (when I really should have been frustrated with my behaviour) that during a losing position, I would say to myself: "Ok market, you aint gonna blow my account, you won't get the best of me".
I would enter such a large position that I would hit margin call instantly. During that moment, I would experience this wave of fear coming over me. I felt trapped, I felt so compelled to stay in the position I could not close it, then all of a sudden, price would go in my favour. I survived the price swing. I would convince myself I was a genius trader.
I Was So Wrong...
The four scenarios above are a fine example of how a trader can develop their mindset to become revengeful when they trade.
Lets take scenario 4). The moment price started to go in my favour, I created the belief that, if I were to become revengeful, price would then go in my favour because "the market knew I was angry".
But this was so detrimental to my trading. I created the belief that when I challenged the market I would be rewarded for it. I would repeat this behaviour thinking price would go in my favour. All it did was make my account hit margin call and wipe me out all the time.
I created the belief that when I challenged the market I would be rewarded for it.
The above scenarios will no doubt crush your chances of becoming a successful trader if you fail to recognise the importance of your beliefs you create whilst you are trading.
Whether you want to trade for money or you trade because you want to fulfill an ego requirement, if you have these thoughts in your mind you will inevitably create habits that will make you behave irrationally.
Be aware of the decisions you make and their outcome. Never assume, like I did, that if you are angry at the market, it will turn things in your favour. If you ever start to feel the following behaviours below, there is a good chance you're going to start revengeful trading:
- Taking short breaths
- Staring point blank at your screen.
- Becoming agitated
- Starting to envision how you will feel if the position closes you out and your account is blown.
- Wondering what will friends and family say if you lose your account balance
- You are so still that you can feel your heart beat.
If you start to feel the characteristics of the above starting to take place. STOP TRADING. Re-evaluate your motives for trading. Taking a break provides clarity.
If you are to start trading. Take it seriously. Educate yourself. You are learning a new craft, a new skill. No half measures. If you want to "have a go" at trading, you will have a better chance at succeeding at roulette.
I hope this post really touches base with how you can develop the habit of revengeful trading. Becoming aware of how easily the mind can be misled is the stepping stone to understanding what needs to be changed to improve your trading.