FrogAlgo: Why not revenge in trading?

2023年6月27日

Sometimes the ups and downs of the market can take a toll on us, both mentally and emotionally. Imagine this scenario: you enter a trade with confidence, having carefully considered every aspect and calculated your moves. You're in a great mood, envisioning the profits that await you. But then, unexpectedly, everything goes wrong.

- In moments like these, it's natural to feel anger and resentment towards the market, perceiving it as unjust. The urge for revenge might arise, and you might impulsively open positions with the intention of punishing the market. However, let me emphasize why revenge trading is not only dangerous but also counterproductive.

- 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, we act impulsively, driven by anger and a desire to prove ourselves. This emotional state often leads to two scenarios: either we open larger positions, amplifying our losses, or we manage to recoup some losses through sheer luck. However, neither of these outcomes is a sustainable or wise approach.

- Attempting to take revenge on a market that is infinitely more powerful than any individual trader is irrational. It is crucial to remember that revenge trading is driven by emotion rather than logic and strategy. By engaging in revenge trading, we lose touch with reality and abandon the strategies and algorithms that used to bring us profits.

- Effective money management and risk compliance become distant thoughts, and we throw all our resources into the blazing fire of revenge. Trading based on intuition, rather than a disciplined approach, becomes akin to gambling. This approach is destined to fail and can result in even greater losses over time.

- So, how can we overcome the urge for market revenge and make more rational trading decisions?

- First and foremost, it's important to take a step back when the desire for revenge arises. Slow down your emotions and actions by stepping away from the computer and engaging in activities that involve fine motor skills. Solve puzzles, pursue a hobby, go for a walk, or connect with a friend. By shifting your focus away from trading, you allow the rational decision-making part of your brain to activate.

- Next, take the time to analyze the situation and process your emotions. Write down a detailed analysis of the incident, 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.

- Evaluate your trading strategy and ask yourself 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? Assess not only your trading system but also your money management rules to ensure you are effectively managing risks. Proper risk management acts as insurance, protecting you from substantial losses.

- To overcome the desire for revenge, it is essential to understand what triggers it and address the underlying reasons. When we attribute personal meaning to our trades and view the market as a reflection of our self-image, we often find ourselves caught in 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.

- Always remember that the market provides only factual information for analysis, and behind the price quotes lies nothing more than information. By recognizing this, we can approach trading with a clear and rational mindset, leaving behind the destructive cycle of revenge trading.

In conclusion, revenge trading is a dangerous path to take. By following the steps outlined above and focusing on logic, strategy, and effective risk management, we can overcome the urge for revenge and make more informed and profitable trading decisions.