If you go to Wikipedia the basic definition of "Revenge" (also known as vengeance or payback) is a harmful action against a person or group in response to a grievance, be it real or perceived. The key ingredient in this definition is the word "perceived". Traders often want to get revenge on a stock that they lose money on. Although short-term revenge trading feels good emotionally, long-term results can be very damaging.
Stocks in the stock market go up and down daily. Sometimes their movement is very erratic or unknown. Entering and exiting stocks can be very difficult especially when you're wrong. Revenge trading is very common because the unknown risk involved in trading stocks is very unquantifiable. Usually if a trader is wrong on a trade they get mad. They take the loss personal. The trader doesn't separate the emotional aspect of the loss from just another trade. To satisfy their emotions they trade it again so that they are right without taking a loss. If the trader is very emotionally set into the trade they will do the complete opposite of the original trade. An example can be seen when a trader goes long a particular stock and then switches to going short the same stock. The logic is, "If it doesn't go up it must go down. I"ll teach it to mess with me". Either way the trader is involved emotionally in the trade and gets mad.
The characteristics of these types of traders are 1. Win at all costs. 2. No confidence in their strategy. 3. Gambler type 4. Not very good at basic math and probability. But keep in mind this is a very general characteristic. Revenge traders come in all sizes, shapes, and backgrounds.
The best way to resolve revenge trading is to completely stop trading that particular security and let the mind heal. Another thing that can be done is take the day off or take the week off. Winning trades always incur battle wounds and cuts. Losing trades is part of trading and needs to be accepted. Losing only leads to winning. In the long run it is part of it.
The revenge trading sickness can be caught by anybody. Some people are more susceptible to it than others but there are ways to resolve it. The best method to cure it is by stop trading that particular security or take time off to ease the mind. Keep in mind this is easier said then done.
Author Resource:
Vixiana Nyseia writes about the stock markets & NYSE Volume . She also blogs about some of the investment compliance issues of the week. On her time off she trots on the strand and does Athletics.
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