Lessons › Why traders lose › Revenge trading
World 11 · Why traders lose · lesson 15 · level 2
Revenge trading
Revenge trading is going bigger to win a loss back, and doubling after each loss turns three losses into seven normal ones.
In one line
You just lost a trade, and the next one is already twice the size. That is revenge trading.
Explained simply
Revenge trading means going bigger to win a loss back. A loss feels like something taken from you, so you want it back now, and a bigger trade looks like the fastest way. Say your normal loss is $100 and you double after each loss. Three losses in a row cost $100, then $200, then $400: $700, seven normal losses. In 1,814 real trade ideas we checked, the stop, the give-up price, was hit first 54% of the time. Treat each trade as separate, and three losses in a row come about one time in six.
A worked example
An example: your normal loss is $100. Doubling after each loss, three losses cost $100 + $200 + $400 = $700. With the rule "same size or smaller", the same three losses cost at most $100 + $100 + $100 = $300.
Mistakes to avoid
- Doubling the next trade to win a loss back fast.
- Making your rules after a loss, while it still hurts.
- Treating three losses in a row as too rare to plan for.
- Trading on after two losses in a day.
Check yourself
What is revenge trading?
Going bigger to win a loss back. It is the urge to get a loss back now. A bigger trade looks like the fastest way back, and that is the trap.
Your normal loss is $100 and you double after each loss. What do three losses in a row cost?
$700. $100 + $200 + $400 = $700: seven normal losses in three trades.
You follow this lesson's rule, set before you trade. You have lost two trades today. What now?
Stop for the day. After a loss, the next trade is the same size or smaller. After two losses you are done; the market will still be there tomorrow.
Your normal loss is $50 and you keep the same size after each loss. What do three losses in a row cost?
$150. 3 × $50 = $150. Doubling instead would cost $50 + $100 + $200 = $350, more than twice as much.
In our 1,814 real setups, 54% hit the stop first. Treating trades as separate, how often do three losses in a row come?
About 16%, one time in six. 0.54 × 0.54 × 0.54 is about 0.157, so about 16%, one time in six. That is arithmetic on our data, not a promise.
Goal of this lesson: Set your rule before you trade: after a loss, the same size or smaller; after two losses, stop for the day.