What Is Crypto Revenge Trading? 4 Ways to Avoid Revenge Trading
Reading Time: 5 minutesCrypto revenge trading can get you into trouble. Be mindful of what it is and learn how to avoid it.
Revenge trading is common, especially among those involved in derivatives trading. Short-term derivative traders get many trading opportunities and have the potential to make a lot of profit in a short time. Having to make many trading decisions in the short term also opens them up to short-term profits and losses. They can easily get so overwhelmed with losses that they start to make emotional decisions, including revenge trading. Let’s quickly look at revenge trading and how you can overcome it.
What Is Revenge Trading?
When you lose money in a trade or endeavor, it is normal to want to get it back immediately, and you try to take immediate action. The move to recover may make you act without logic, and could lead to more losses—the act of trying to get it back is what revenge trading is.
Crypto revenge trading, as described above, is a move to make up for bad losses or losses from trades by making irrational decisions that are against your trading plans. They often end badly and lead to greater losses, if not the total loss of all the funds in your wallet.
Revenge trading is a very bad trading practice. It is characterized by impulsive and emotional trading without any analysis to support the move. It often shows up during losing streaks or after a big loss, and every trader passes through a time when they are triggered to carry it out. Revenge trading is one of the leading causes of failure among traders.
Characteristics of Revenge Trading
Every trader, at some point, has had to deal with the urge to take revenge trades or has fallen into it. The trader first incurs a loss, then is unable to cope with it and seeks to recover it as soon as possible.
When revenge trading, you are trading according to your emotions, neglecting your proven strategy. With this act, you are bound to lose your money and even the whole of the funds in your wallet. When revenge trading, you forget your trading plans, like your entry and exit levels, even if they have produced consistent results in the past.
One more common thing during revenge trading is that risk management is not usually adhered to since you are looking for ways to beat the system and make up for the huge loss in a short time.
The losses from revenge trading can cause you to lose faith in your trading abilities. The huge losses that result from it can make you lose confidence, and it might take you a long time to recover from such a state of mind.
What Causes Revenge Trading?
We have mentioned that revenge trading is usually triggered when traders have losing streaks or big losses. The loss triggers the trader’s emotion to trade out of his plan. Such emotion could be a sudden fear of losing your account or the craving to get a lot of profit after a loss.
Anger and overconfidence can also cause revenge trading—the anger of losing a trade or overconfidence in one’s strategy, which pushes you to execute trades with a much larger position than you would have taken.
The crypto market is uncertain and volatile. The fact that there is a price drop does not imply that the price will not rise again quickly. However, inexperienced traders get depressed by setbacks forgetting that things can turn around in the next trading opportunity. They are always tempted to go all in and risk more than they would have without such temptations.
4 Ways to Avoid Revenge Trading
The following are ways you can avoid revenge trading.
1. Always Stick to the Plan
The chance of trying a revenge trade is minimal if you consistently stick to your trading plan. If you have a proven trading strategy, trading according to it should only produce the results you expect or at least a form of consistency to keep you in the game for a long time. So, when you make a loss it would only be an expected percentage of your wallet balance. Your profits would also be within the expected range.
It is normal for humans to want to recover a loss immediately, but trying to do that in the market is somewhat dangerous and leads to losses. Trades should only be executed based on predetermined conditions that you must have documented in your trading plan. Anything outside of that makes you lose discipline since nothing is guiding your decision-making process.
Trust the system you have created and don’t mind the losses because, with a good system, numbers will add up in your favor.
2. Learn to Accept Losses
There is no holy grail to trading. The holy grail is having a proven trading strategy and following the strategy with proper risk management. Accepting that no matter how good your trading strategy is, you will have times when you make losses will help you approach the crypto trading market better.
You don’t have to shift your stop loss to accommodate the chance that a losing trade would reverse. The stop loss should be there to help you get out of trades that are already going against your plan, as it ensures you do not lose more than the amount you have predetermined.
3. Document Your Trades
Journaling your trades will make you a more disciplined trader. If you journal your trades, you can see why you are executing each trade and know if you are trading according to your plan.
Documenting your trades will also help you learn from your mistakes since they will also be documented. Thus helping you handle losses and mistakes better.
4. Take a Break From Trading
Taking a break from trading is one way to avoid revenge trading. You may need to take a break after making a series of losing trades. Taking a break helps you learn what went wrong or if it was just the market being the market.
Only get back into active trading when you think your mind has healed, and you are in your best mental state. You must also always know that losses are an inevitable part of trading.
Losses Are a Part of the Game
Even the most skilled and profitable traders have bad days and weeks. Having losses does not necessarily mean that the market is against you or that your system is broken. The crypto market is volatile, and you don’t control it. Your focus should be on trading as you see it and as permitted in your trading plan and strategy.
To have faith in your strategy, you must have back-tested it over time. A well-tested strategy increases your confidence in it. Thus, when you have losing streaks, you know the market is only being the market, and the losses are always part of the game.
Reference: https://www.makeuseof.com/crypto-revenge-trading-and-ways-to-avoid-it/
Ref: makeuseof
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