By: Adrian Friggieri
Have you ever heard of this ‘revenge trading’? Sounds like a wild ultimate sport isn’t it? Well rather than a wild sport is a wild wallet burner. We, human beings do not like to lose in general, so when a person gets some heavy loss they will just enter the market again and again one trade after the other without any proper money management rules, strategy or even without any indicator at all. They just would want to claim their money back from the market! They act like a spoil sport and cry, “give me my money back now I tell you!!!” That’s not the way it should be of course, hope all of you agree with me here.
The best way to avoid this is to have a clear money management strategy that incorporates 2 things:
1. Stop Losses
2. Margin of loss (the pain threshold)
Seriously these 2 small but valuable things can avoid you being so stressed out after a heavy loss and can save you from actually having to incur such a heavy loss if you apply them as it should. Imagine you have been trading a whole month, collecting pips all the way. You have spent hours and hours looking at the screen for the correct setups and trades to form up. You have had liters of coffee and even missed a few cool TV shows you like for the ultimate trade. Then you enter a trade thinking you will continue the way up in your account heading to month end to withdraw and have that extra buck in your wallet to enjoy. The trade starts well, than starts to go against you, you say it is ok, no problem I can take this, let it move and will come back to profit later.
You keep on moving the stop loss more and more and more until the trade has fallen too much and your account has even reached possible margin call in the attempt to revert the trade in your favour. At this point some people even add more money to the account. On the spot you see all those hours trading being swiped away with 1 single bad trade, thrown in the bin just like nothing happened. Believe me this also happened to me! Feels like crap! Honestly, the first instinct to do is to revenge trade in order to get back your loss and in order to try to calm down without possibly accepting the loss. But what you would do this way is to just add more pain into your account, and your pocket of course.
So my personal advice is to make sound and firm stop losses when entering a trade, even if it means you have 10 loosing trades one after the other, its better than having just 1 loosing trade but wipes you off. My second advice is to have a realistic pain threshold limit. Do not overdo this, it will feel miserable if you cannot cope with the loss you just incurred. Trade what you can afford to lose and that’s it, not a single penny more.
Another thing some people might want to add to my list is to have an exit strategy, I shall cover this topic in future posts, but I would start by having the 2 I have mentioned first than go a little more advanced in your trading styles.