“Reaching Out” Immediately After a Loss—The Psychology of Revenge Trading and How to Distance Yourself [Investing x Psychology]
“I have to win this back!!”
I have lost count of how many times I’ve entered a position thinking exactly that after failing to trade as intended and suffering a loss.
Impatience wells up from deep within, and before I know it, my hand is reaching for the chart again.
I have faced those emotions many times.
No, to be honest—that impulse still rears its head even now.
A day with a big loss.
Thinking, “I don’t want to end it like this,” I jump into another stock,
and then I lose again.
Before I knew it, I had become a day where I wasonly fighting my own emotionsrather than the charts.
That is the“revenge trading”I have repeated over and over.
If you are an investor, perhaps you have also had moments where your heart was captured by “revenge trading.”
“Wanting to win it back” is a human reaction
Immediately after a loss, the heart cannot remain calm.
“I want to wipe out that last loss.”
“It was just bad luck.”
“I can’t accept ending it like this.”
And then, the hand moves.
This feeling is not a weakness.
It is a very human, natural reaction.
The brain is inherently equipped with a“cannot leave what was lost as it is”type of
defensive instinct.
What psychology calls “Loss Aversion” + “Cognitive Dissonance”
I would like to look at this from a psychological perspective.
Loss Aversion
People react more strongly to the pain of losing than the joy of gaining.
In other words, the desire to“make the loss as if it never happened”tends to take precedence over the desire to “win.”
In addition, there is one more thing.
Cognitive Dissonance
The psychology of wanting to believe that “my judgment was correct.”
Humans are creatures who want to protect their own choices.
That is why, immediately after losing, you are more likely to prioritize protecting your own heart over looking at the facts.
When these two things overlap, reconciling your emotions comes to the forefront rather than your original goal (increasing assets).
This is the true nature of revenge trading.
A slightly embarrassing personal story of mine
Several years ago, I suffered a painful loss on a certain stock.
It started moving in the opposite direction of what I had expected, and I panicked and cut my losses... that part was fine.
The problem was what happened after that.
Driven by frustration, I immediately reached for another stock, and as expected, my losses ballooned.
At that time, I don't think I was properly looking at the chart patterns, the volume, or even the company name.
When I looked back at the chart later, it was a spot where I wanted to ask myself, “Why did you enter there?”.
What I was looking at was my own wounded heart and my dwindling assets.
Revenge trading might be a way of “dealing with pain”
Revenge trading is not a technical issue, but an issue of emotional processing.
The reason you want to act immediately after losing is
not wanting to deny yourself
not wanting to remain in a state of anxiety
wanting to make the emotional pain go away quickly
—these are very human desires.
That is why there is no need to blame yourself.
Your panicked heart is simply trying desperately to protect itself.
3 ways to keep your distance from “impulses”
① Create a ritual to stop yourself once
When you lose, immediately
・Get up from your seat
・Take a deep breath
・Make some coffee
Anything will do, just insert a break in your routine.
This alone will gently calm the momentum of your emotions.
② Write down your emotions in just 3 lines
For example
Frustrated
Don't want to admit it
Want to win it back
When you write it on paper, the "heat" inside you is put into words and cools down. This is because emotions
weaken when you put them into words.
③ If you can't write down your next entry conditions, don't enter
Why enter?
Where to cut losses?
Where to take profits?
If you can't write these three down in 30 seconds, then it is an impulse, not a decision.
Trades entered on impulse almost always lose the "battle with yourself." (This is... the weight of experience, haha)
The choice to "not fight" is also a fine strategy
What is important in investing might be days where you minimize damage rather than days where you win.
I believe that how you spend the days you lose determines whether you can survive in the long run.
Close the charts, eat something delicious, and go to sleep. That is better for
the you of tomorrow.
The market won't run away. But
your mental stamina will run away.
That is why you protect yourself.
Isn't it okay to have days like that?
To those who have read this far
If you would like, please tell me about a moment when you "got carried away," or
any habits you have to help you calm down.
It will surely help someone else, and I would love to learn from it myself (^-^)
Thank you for reading until the end.
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Related (if you want to read more)
The correct way to deal with a "market crash scream": Investor etiquette during a plummeting market—— Concrete examples of how to spend a day when the market gaps down
My process for cutting losses in stock investing (a stylistic beauty)—— The "keep the wound shallow" style
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