When new to trading in the UK, it’s easy to make mistakes. And when those mistakes lead to losses, it can be tempting to try to “get back” at the market by revenge trading. Revenge trading is when you trade emotionally to recoup losses from a previous trade. It’s often spurred on by feelings of frustration, anger, or even greed. While it might seem like an excellent way to “teach the market a lesson,” it’s a surefire way to lose even more money.
There are two main problems with revenge trading. First, it clouds your judgment and prevents you from making sound, logical decisions. Second, it often leads to impulsive decisions based on your emotions rather than your trading plan.
Three things you need to know about revenge trading:
If you’re new to trading, it’s essential to understand the dangers of revenge trading and how to avoid it. Here are three things you need to know about revenge trading:
Revenge trading can cloud your judgment
When you trade emotionally, it isn’t easy to think clearly and make sound decisions. Instead, you’re more likely to let your emotions dictate your trades, leading to impulsive decisions based on your feelings rather than your trading plan or strategy.
Revenge trading often leads to overtrading when you take too many trades to compensate for previous losses, which can quickly deplete your account balance and leave you even more frustrated.
Revenge trading can be costly
The costs of revenge trading go beyond the financial losses you might incur. Sometimes, it can also lead to higher taxes if you’re trading with a taxable account. If you’re day trading, it can lead to higher commissions and fees.
Revenge trading can be difficult to overcome
Once you start down the path of revenge trading, stopping can be difficult. That’s why it’s essential to know the dangers before starting trading. If you start to trade emotionally, take a step back and reassess your approach. It might be helpful to talk to a professional trader or financial advisor who can help you develop a sound trading plan.
How to prevent revenge trading
If you’re new to trading in the UK, you must know the dangers of revenge trading and how to avoid it; follow these three tips to help prevent it.
Develop a sound trading plan
Before starting trading, developing a sound trading plan is essential, which should include your investment goals, risk tolerance, and entering and exit trades criteria. A plan will help you trade with discipline and avoid impulsive decisions based on emotions.
Stick to your plan
Once you have a plan in place, it’s essential to stick to it. That means following your entry and exit criteria and not letting your emotions dictate your trades. If you feel emotional about a trade, take a step back and reassess your plan.
Seek professional help
If you’re struggling to overcome revenge trading, seek professional help, which could be from a financial advisor, therapist, or trading coach. They can help …