1. What Is Revenge Trading?
Revenge trading occurs when a trader, after experiencing a loss, immediately tries to recover that loss by placing another trade—often without proper analysis, strategy, or risk management.
It is an emotional response to a loss, driven by anger, frustration, and the desire to "get back at the market."
Common Signs of Revenge Trading
Placing trades immediately after a loss, without a solid setup
Increasing position size or leverage to "win back" money quickly
Trading assets outside of your usual strategy
Ignoring stop-losses or adjusting them to avoid taking a loss
Feeling angry, frustrated, or desperate while trading
Example of Revenge Trading
A trader loses $500 on a trade. Instead of stepping back, they immediately enter another trade, risking double the amount ($1,000) to recover losses quickly.
The trade also goes against them, leading to a larger loss—now down $1,500 instead of the original $500.
Fueled by frustration, they enter another risky trade, hoping to break even, leading to further losses.
This emotional cycle can lead to account blowups, emotional exhaustion, and long-term damage to a trader's confidence.
2. Why Does Revenge Trading Happen?
A) Psychological Triggers Behind Revenge Trading
Revenge trading is rooted in psychological biases that cloud a trader’s judgment.
Loss Aversion Bias – The pain of losing is psychologically stronger than the joy of winning, making traders desperate to recover.
Ego and Overconfidence – Some traders refuse to accept they were wrong, leading them to overtrade in an attempt to "prove" they are right.
FOMO (Fear of Missing Out) – Traders feel like they need to “get back in” before they miss the next move.
Impulse Control Issues – Emotional traders react instinctively rather than following a structured plan.
B) The Illusion of Control
Many traders falsely believe that by entering another trade immediately after a loss, they are regaining control. In reality, they are handing control over to emotions rather than logic.
C) The Impact of Losses on the Brain
Studies show that losses trigger activity in the same part of the brain responsible for pain and survival instincts. This causes traders to act irrationally, much like a gambler doubling down after losing a bet.
3. The Consequences of Revenge Trading
A) Increased Losses & Account Blowups
Revenge trades usually involve larger-than-normal position sizes and higher risk, leading to a faster depletion of trading capital.
B) Emotional & Mental Fatigue
The stress of revenge trading increases anxiety, frustration, and self-doubt, making it harder to trade with a clear mind.
C) Loss of Trading Discipline
Revenge trading leads to ignoring stop-losses, overleveraging, and abandoning trading plans, ultimately causing more harm than the initial loss itself.
D) The Psychological Spiral
A trader who starts revenge trading often falls into a negative loop:
Loss occurs
Emotional reaction leads to revenge trade
Bigger loss follows
More frustration and emotional trading
Account suffers, confidence drops
Trader either blows up or gives up
Breaking this cycle is essential for long-term success.
4. How to Stop Revenge Trading (Proven Strategies)
A) Accept That Losses Are Part of Trading
Even the best traders lose trades regularly. Losses are a natural part of trading and should be viewed as the cost of doing business.
Reframe how you see losses: Instead of thinking, "I lost money," shift to "I followed my plan, but this trade didn’t work out."
Focus on probabilities: No strategy wins 100% of the time. A system with a 60% win rate will still have 40% losing trades—and that’s normal.
B) Set a Daily Loss Limit
To prevent revenge trading, establish a hard limit on how much you can lose in a single day or session.
Example:
If your daily loss limit is $500, stop trading if you hit that limit.
Once reached, log off for the day to prevent further losses.
C) Take a Break After a Losing Trade
If you take a loss, step away from your trading desk. Give yourself at least 10–15 minutes before considering another trade.
Effective Break Strategies:
Walk away from your screen.
Do a quick physical activity (push-ups, stretching, or a short walk).
Write down what happened in a trading journal.
This simple habit helps reset your emotional state before making another decision.
D) Reduce Position Size After a Loss
Instead of increasing risk after a loss, do the opposite. Reduce your trade size by 50% or more until you regain composure.
This prevents emotionally driven, oversized trades that can cause further damage.
E) Follow a Structured Trading Plan
A trading plan helps eliminate impulsive decisions. Your plan should include:
Entry & exit criteria (when to enter and exit trades).
Maximum number of trades per day.
Risk-per-trade limit (e.g., 1-2% of account balance).
By following a written plan, traders are less likely to make impulsive revenge trades.
F) Keep a Trade Journal to Track Emotional Patterns
Many traders don’t realize how often they engage in revenge trading. Tracking trades and emotions in a journal helps identify these patterns.
A good journal includes:
Why you entered the trade
How you felt after a loss
What actions you took next
Reviewing past revenge trades makes it easier to spot and correct the behavior.
Conclusion
Revenge trading is one of the most dangerous habits in trading. It turns trading into gambling, destroys accounts, and erodes discipline. The good news is that it can be prevented with the right mindset and structured trading habits.
Key Takeaways:
Revenge trading happens when traders act emotionally to recover losses.
It is triggered by loss aversion, ego, impulse control issues, and stress.
Taking breaks, reducing position size, setting loss limits, and journaling can help eliminate revenge trading.
Losses are a natural part of trading—accepting them prevents emotional reactions.
By shifting focus from winning back losses to executing a disciplined trading plan, traders can break free from revenge trading and build long-term success.