If revenge trading is a strategy that you would like to try, then you probably have some doubts about whether it works and what the chances of success are. We take a look at revenge trading, and you can read more here to learn about the ins and outs of trading.
Does revenge trading work, and what is it?
Many factors influence the outcome of any trading in the market, but let’s start with what exactly is revenge trading? What should you expect from this strategy? And does it work?
Revenge trading refers to an investment strategy where traders open new orders hoping to reap benefits from their old orders – letting profits run while cutting losses. Depending on how effective your revenge order has been in securing profit for you, there are two possibilities.
If the old order was a loss, you are hoping to use the price momentum to cover your losses. If it made you money, you hope to make even more using the same principle.
1. How revenge trading usually starts
Revenge trading starts typically when a trader experiences a significant loss in the forex market, followed by a string of losing trades. In this case, the trader will be so disappointed and ashamed about losing money that they decide to take out their frustration on other traders in the market. Revenge traders often attempt to take back what they have lost from one trade by winning many times bigger from another unsuspecting trader’s account. This can, however, lead to even more significant losses for some victims because they did not correctly set up their accounts to withstand the revenge attack.
2. Why do some traders get vengeful?
For some traders, getting revenge is considered more of an emotional reaction than anything else; like while playing poker or blackjack, they might consider it a personal insult to have lost money at an even or disadvantage and go out of their way to get revenge. Some traders may also be encouraged by the fact that forex trading is not regulated, which means no authorities will take any action against them for revenge attacks.
3. How vengeful traders plan their attack
In cases where traders do seek strategies for carrying out revenge in the market, they typically undergo a three-step process: 1) extensive market research on different currency pairs, time frames and styles; 2) backtesting of specific strategies over historical data; 3) live testing using demo accounts before starting with actual money trades. You can see these steps illustrated below:
4. Most victims of revenge trading are novice traders
Most victims of revenge attacks in the forex market tend to be novice traders with little or no experience. A revenge trader would not as easily victimize experienced and prudent traders who practise safe money management because they know how to limit their losses. Revenge trading is often used in conjunction with other scams like high-frequency hackers and online thieves, so you should always exercise caution when considering an offer from anyone you do not fully trust.
The risk of revenge trading
Forex revenge trading is just one example of what happens when you let your emotions take over your thinking process. Most people, no matter how experienced they are, understand this phenomenon very well because they have done it before themselves at some point.
So how can we avoid this and make sure we don’t fall into the same trap again? We need to understand what is causing us to react in such away. For example, if you feel like revenge trading because of previous losses that made you lose confidence, the best thing to do would be to think about your strategy and remove all emotions from your decision-making process. Professional traders usually use this approach when they are facing a tough market which makes them doubt themselves or their strategies. The key here is not to take unnecessary risks just for the sake of it.
