 Welcome back to the Trade Hacker Mindset. In this episode, I want to talk to you about five ways to fight revenge trading. Trading the markets can be difficult to master and seemingly just out of reach. Professional traders have a secret. Trading requires total mental and emotional control. It requires the Trade Hacker Mindset. All right, so let's jump into this discussion of five ways to effectively fight revenge trading. By the way, if you hear some noise in the background, I've got a new mic, but I just finished a about a 75 minute walk and run and it's about 6 a.m. And I just had something pop into my brain. I just wanted to share with you all. So let's do this. So revenge trading. I touched on this a little bit in the last episode when I was trying to use an example for what I was explaining, but I wanted to go a little bit deeper into revenge trading because it is one of the major causes of some trader's failures. And so what we want to understand is that when we revenge trade, and let me back up, what is revenge trading? So revenge trading is if you take a loss on a trade or if you have a losing trading day or a losing trading week or some type of losing situation. Let's just use an example of you have a losing trade, just one losing trade. So the scenario is that because you had that losing trade, you are in an emotional state that you're either driven by fear or greed or anger and you want to get that money back. And so you jump back into a trade with the intention of getting that money back or at least getting part of that money back. And you do it a lot of times with a position size that is larger than normal. So let's say if you traded your first position and you used $10,000 with a buying power, took that loss, now you might jump in with 20 or $30,000 in buying power to try to come back and get that loss back, get to break even or profitable. And so like I said, it's driven out of fear of taking the loss. It's driven out of greed of wanting to make that money back. It's driven out of anger like, ah, I lost again. I got to get this money back. You know, some type of emotional state is driving that scenario. Now the thing to understand about revenge trading is that revenge trading is typically not based on any type of rational trade setup. It's not based on any type of potential opportunity or good well thought out trade mechanics or scenario. It's typically a, I'm just putting on a trade. I've just put on a trade in one before. So why can't I just do it again? And hopefully I get lucky and get back that money I just lost. So it's trading on emotion. It's not trading on actual opportunity. And even if you do have the, let's say the setup that you're looking for, a lot of times the revenge trading takes the form of a revenge trade because you're using larger position size or you remove your stops and you're just gonna let this one play out or you, you know, you get a little bit of profit and you cut your profit short when it would have went longer. So it all plays into a scenario that you're trading outside of your normal trading rules and you're doing it from an emotional standpoint based on the loss that you just took previously. Okay, so that's revenge trading. Now, how do we, how do we fight against revenge trading? Because if you've been trading for any period of time the most likely scenario is that you have revenge traded at some point. So number one, you have to step away and clear your mind. Now this is, this is easier said than done because remember after you've taken this loss that for whatever reason triggered this anger or shame or fear or greed in you, you know it's hard to do this but you've got to be self-aware enough to step back to help clear your mind after loss. Now, how long do you need to step back for from your trading? Well, it depends. I mean, if you're day trading, you know if these are intraday, small move, short duration type trades maybe you're, maybe you're getting up and you're going for a 10 minute walk. Maybe you're just going to the restroom. Maybe you are going into a different room and using some type of meditation or breathing technique just to get back to a clear state of mind. So it doesn't have to be a huge ordeal where you're stepping away from trading for a significant amount of time, but it can be. So, you know, so that's for day trading it might be just a short break clear your mind if you've suffered a loss that occurred over many days or many weeks and it kind of accumulated and you just had this weird deer and your deer in the headlights look for a matter of days or weeks. Hey, I've been there. I've been there. You know, then sometimes you need it maybe you need to take a break from trading for a day or a week or a month. I've taken a break from trading for six months because of a revenge trade that I did. And I've talked about this several times. It was trading oil a long, long time ago where I kept doubling down and averaging in and next thing you know, I blew up my account. All right, so I'm not going to go into the details there but so it depends on the situation but sometimes you have to just step away temporarily take some time off maybe come back and place a small trade if you feel like you need to be in the markets but a very, very tiny almost insignificant size trade that you know will not trigger any type of emotional response. Number two, you have to do a self-assessment. You have to be able to, so once you step back then you have to be able to look at yourself to figure out what led to that loss and what led to that revenge trade. I cannot stress enough how much self-awareness is critical to you becoming a consistently profitable trader. Brett Steenbarger who's kind of a famous trading psychologist he's written a bunch of books and he's got a lot of good he does a lot of coaching and stuff like that a quote of his to become aware of what is happening a trader needs to be self-aware he or she needs to be aware first and step back from the screen and assess the situation a trader needs an objective view of the situation to be able to rectify the revenge trade and its consequences, okay? I think that summarizes it pretty well you've got to be self-aware you've got to self-assess don't blame the markets it's not the market's fault you pulled the trigger you entered the trade you closed the trade that's what you can control and that's what you have to assess you have to assess yourself number three you have to take a look at the market conditions you have to assess the market conditions you know I think my the times when I have made revenge trades and the times when I have suffered the most significant losses are in times when the market is at extremes you know the oil trade that I just mentioned that was my worst trading situation of my life that was at a time when oil cut not too different than it is right now actually where oil went above $100 a barrel and just was continuing to just outpace all expectations and oil was all over the headlines it was an extreme situation you have to step back when you step back first assess yourself then assess the market conditions and say you know is this a scenario that I really want to put my money at risk at remember we can control when we are in the market and we can control when we're not in the market so if you can assess the market situation and be like you know there's probably a better risk lower risk scenario than putting my money in this market at this extreme situation maybe it's extreme volatility maybe it's extreme low volatility you know there are situations where the market is just absolutely grinding and it feels like you're watching paint dry because it's moving so slow you know that's an extreme situation extreme volatility where things are moving all over the place high implied volatility that's an extreme situation so you have to recognize the market situation and assess whether that's a time that you actually want to put your money at risk number four you have to take a look at your trading strategy is your strategy that you're trading a good one for the current market environment we've talked about this in past episodes where you can't just use the same trading strategy for every single market environment you know I think you know we all would love to have that one strategy that is just so dynamic that it works in every single market situation but that doesn't exist okay so you have to assess your strategy and figure out does this strategy fit the current market environment and am I you know is this strategy a solid strategy in other words am I trading something that makes sense is the risk reward makes sense does the you know like an example would be if we're in an extremely low applied volatility environment I'm probably not going to be selling naked options in that environment right we want to sell options when implied volatility is high benefit from that contraction so you've got to assess your strategy and figure out does it make sense to keep trading that strategy in this market environment so number five after we have stepped back after we have assessed ourselves after we have assessed the market conditions and after we have assessed our own trading strategy after you've done all these assessments now you are in a position for number five which is to make the necessary adjustments now you have to look at potentially making adjustments to all four of those scenarios do you need to make an adjustment to yourself do you need to make an adjustment to your trading routine or your morning ritual before you start trading do you need to look inside and figure out what needs to change with you because a lot of times that is the biggest situation that can change your trading for the good now you can't adjust the market conditions but you can wait until the market conditions change before you start trading number four is assess your trading strategy can you make adjustments to your trading strategy based on the current market conditions and are you in a state of mind where you can continue trading you know I think this is a big one because and it's hard to do because then you're tapping into this thing we call our ego where our ego doesn't want us to think that anything is wrong, right we wanna just push through but if you're not in a state of mind where it makes sense for you to continue trading then it's probably best to continue to step back for a period of time the other thing that I think is a really and I haven't done this to a on a consistent basis but this is something that I read about and we've got another trading psychologist kind of a high performance trading coach coming on our podcast here in the future his name is Steve Ward and one thing that he talked about I was speaking to him on the phone and he kind of pointed me to this something that he uses and basically it's a four step strategy that he has his high performance trading students use and it's kind of a post loss ritual and so this post loss ritual the four steps are number one acknowledge that the losing trade was not what you wanted or expected number two, note the feedback and what you learned then throw the trade away three, imprint or mentally rehearse what you wish had happened and four, affirm to yourself that's how I will do it next time I thought that was a pretty cool post loss ritual that I'm gonna try to start to implement in my trading after I suffer a loss that you know the loss that just kind of hurts I mean I hate losing more than anything but losing is also part of trading but sometimes you just have those losses that just hurt a little bit more than others right and so I'm gonna I have a note on my desk that I'm gonna be starting to implement those that kind of a post loss strategy so now to wrap this up of course we really wanna avoid revenge trading altogether right and so before it even happens you know it all comes down to things that you've heard over and over you've gotta stay disciplined when you're trading you've gotta stick to your trading plan you have to understand that losses are part of trading you have to accept the loss and move on you have to know when it's the right time to stop you know let's say you have three bad trades in a row maybe step back and take a small break you have to learn from your mistakes you have to maintain your trading routine all of these things you have to keep your position size small all of these things will help you from not revenge trading to begin with but the prior part of this podcast is when it does happen try to follow these five steps to get yourself out of it you don't wanna spiral out of control you wanna stop the bleeding as soon as it starts and get yourself back on the right path so I hope this was helpful if you wanna be part of our trading community just go to community.navigationtrading.com it's free to join we have hundreds of traders interacting on a daily basis not only about the mindset stuff but sharing trade ideas with the sole purpose of helping each other become better traders I look forward to seeing you on the inside and we'll see you in the next episode.