How to Overcome Revenge Trading: The Psychology of Loss

The Psychology of Loss

Biologically, a financial loss registers in the same part of the brain as physical pain. When you get hurt, your amygdala (the primitive brain) hijacks control from your prefrontal cortex (the logical brain). Your 'fight or flight' response kicks in.

In the jungle, fighting a threat saves your life. In the market, 'fighting' the trend kills your account. This manifests as Revenge Trading.

Signs You Are Revenge Trading

• You immediately open a trade in the opposite direction after hitting a stop loss (the "flip").
• You increase your quantity to "make back the loss quickly" on one trade.
• You are trading setups that aren't in your plan, just to be "in the market."
• You feel physical heat, elevated heart rate, or anger towards the chart/broker.

The "Circuit Breaker" Technique

Just like the stock exchanges have circuit breakers to halt trading during crashes, you need a personal circuit breaker.

1. The 2-Strike Rule: If you take 2 losses in a day, you are done. Close the laptop. No exceptions.
2. The Physical Reset: After a loss, stand up. Do 10 pushups. Drink cold water. Reset your physiology to lower cortisol levels.
3. The Journal Review: Before taking the next trade, force yourself to write down why the previous one failed. The act of writing engages your logical brain and dampens the emotional brain.

Remember: The market does not owe you anything. It doesn't know you exist. Trying to "punish" the market by raising your size is like trying to punish the ocean by drinking it.