In This Episode
- Disney movies show us why we can revenge trade
- Why broker reviews are so bad
- How to find a trading manager or become your own manager
The Causes of Revenge Trading and How to Overcome Them
Revenge trading is one of the most common reasons that traders blow out their accounts. In the heat of the moment, it can seem like a good idea to keep trading.
But rarely does more trading get you out of a bad trading session.
Yes, easier said than done. So in this episode, we explore the causes of revenge trading and how to beat the habit of overtrading
This episode might just save you a ton of money.
Read the Transcript:
Hugh: Hi, Walter. Revenge trading. I know some traders do it. I haven't really suffered from that but let's talk about that and see how and what? First of all, why do people do it and what are some ways to overcome it?
Walter: Well to me, it's kind of like the same reason why as humans we will look at different animals and we'll give them human characteristics. There's actually a really fancy word for that and I can't remember what it is. They do that in Disney movies. They take animals and they make them look human. We do that.
When we see animals like you go to the zoo and you go, “Oh, look! Look at that walrus. He's so angry.” How do you know that the walrus is angry? He just doesn't always look like that. Do you know what I mean? To me, that's a weird thing and we do the same thing I think with the markets where it's like, “Aah, you little Pound! You got me this time. Next time, I'm going to get you” sort of thing you know.
It becomes this thing where it's like, “I'm going to get back at the Pound because the Pound has been beating me up and taking my money”. That's just a license to get off the road. You're going to be off your plans. You're going to get away outside of that.
Hugh: And it's personal.
Walter: Yeah, it’s personal. The other way that comes up though is brokers. You'll hear people say, “Oh, my broker got me again” or whatever. I will say that there are brokers that do that especially in Forex but it's not the norm. You can usually figure out who they are really quickly by the reviews.
So when you see these reviews where these brokers are just getting hammered, — all the brokers get hammered in the reviews actually but the ones that get really hammered you know — those are the ones that you want to stay away from. Sometimes you can kind of tell when someone gives a broker a bad rating. You can see they're like, “Well, what they're saying is completely ridiculous.”
I'm actually on the side of the broker, do you know what I mean? You can get spiked and things like that and so you're like, “I'm going to get that. I'm going to get my money back” and stuff like that but it's really important for you to just determine like what are you trying to do as a trader?
Are you trying to make money out of the strategy that you've tested and you know has a really good chance of working? Or, are you trying to get back at the broker, the currency pair? Trying to prove your boyfriend or girlfriend wrong that you know you can make it out of trading. What is your real motivation? I think the closer you are aligned to following your rules and actually following that path, the better off you are.
Hugh: Totally, for sure. I think it really boils down to ego. We want to prove something like you said and our ego can't let go of it. We need to get back at them. All right, get back at whatever we perceive to be the culprit or cause us to lose. So what do you think are some ways to get over that?
Walter: Get over it? First of all what you said, I totally agree with the female traders typically don't have as much of an issue with that. They're really good at letting go of ego. Typically, not always. Typically they don't have the ego that men do and you'll see this when you go to see trading gurus talk. The men will talk about all the money they made and how good they are. How they do this and that. It's like you know you're setting yourself up for failure.
At the time that we're recording this, there's a really famous dude on twitter. Who trades stocks. He's made a boatload of money. The last couple days, he's lost four-point-five or four-point-two Million or something like that because he's letting his ego take over. He's saying, “The stocks only go up. If you have any rule, rule number one: stocks go up and they only go up. Rule number two, if you have any questions about what to do on a trade, see rule number one.” So what he's doing is he's really setting himself up for a life-altering loss.
Hugh: Hey there! I hope you find this episode useful. I just want to let you know that Walter and I give away something valuable every month that helps traders improve their skills. You can enter to win by simply leaving an iTunes review and leaving a comment on our YouTube videos.
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Walter: If you read the Market Wizards books, you'll hear all the stories about these guys who went through that. So how do you get rid of ego? What you need to do is you need to become your own manager or have a manager; one or the other or probably both. So one, to become your own manager is rate your score on the entry and rate your trade on exit. Objectively look at that every week, every month, every quarter, every year.
How are you tracking? You can keep it in a spreadsheet. See how you're going; how your rating is going. The other thing you do is every week you can talk to someone else and have them do the same thing and say, “Well, you didn't do what you said you were going to do with your system on three out of your five trades. So what's going on here, buddy?” That's another way.
What you're trying to do is step out of yourself and see your performance from another's point of view. This is why the professional traders, when I say professional I mean like the guys that's their job at the bank or the funds. They have someone looking over after them. They all do. When they leave, they don't. When they go home and stray with their own money, they don't anymore.
Let's look at the difference between performance. So you can create that yourself where you have someone else. You can try to do it yourself with your journal and you know rate, your entries and exits. Rate your performance on the execution side but you can also get these sort of reports from somebody else that you trust.
You can do the same thing you know. It's a trading buddy sort of thing. I try to connect people with trading buddies in the forum. It's a really good way. Every week, just work on one thing. What's the one thing that you tell your trading buddy you're going to work on this week. Simple as that and then at the end of the week, how did you do? Did you do it? Show me. Let me see the trades. Let me see the data.
Even if the one thing is just I'm going to back test a hundred trades this week. It doesn't have to be live trading. It could be back testing or whatever. So that's what I would recommend to do. Offload the responsibility of knocking down your ego to someone else. They're much better at it, hopefully. Hopefully they'll tell you the truth. You need someone who's truthful, right?
Hugh: Yeah, exactly. I think we both know several bank traders who could trade well at the bank but when they leave, it's really difficult right. It's part of that system. Now I would also add that I think it helps to physically imagine yourself as separate from yourself almost. Observing yourself from as like a third party and that helps me to get more objective about what I'm looking at.
Walter: Yeah like a camera. I read about this when I was in my trading sabbatical. So you kind of like back in 2004, I don't know if it's NLP or maybe it was NLP but the idea that you kind of see like you say, like you're there trading. I remember when I first started doing it, I was like, “Man,” I looked at myself and I felt like I was addicted.
I felt like I watched myself trading and my setup. I had this really comfortable chair and I was sitting at it like every night. I just thought, “Man, you're just sitting there; in that chair the whole time. What are you doing?” That's when I kind of moved away from trading the lower time frames.
I just thought, I realized number one, that all my best trades were the ones where I didn't sit and watch it. So I kind of walked away. Thing number two was doing that technique you just said. Which is a great technique because I kind of objectively saw my body is going to mold into that chair. Do you know what I mean? I am going to be like, I'm going to turn into Jabba the Hutt.
I would fool myself because all day I was surfing. I was going you know doing whatever I wanted and then at night, around six or five o'clock is when I would sit down in that chair. Just lock into the computer and I'll be there from like six till two a.m. It was crazy. So I just thought this is not a good idea and so that can definitely help.
You could ask other people. It doesn't even have to be with your trading accountability partner. You want someone who's a trader but it could be someone that doesn't really understand trading.
You can ask them, “What do you think about my trading?” Because then, you might get a perspective. They might say something that'll shock you like, “Are you really happy? Is this really what you want to do? You always seem so upset?” They could give you some sort of weird insight that you hadn't even considered.
Hugh: Yeah because if you're in it like there's a certain amount of dogma associated with any type of activity or profession. Some people get brainwashed into that but when you get an opinion from somebody else, from the outside then you can get something that's fresh. Something that's not necessarily part of that dogmatic thinking.
Walter: Yeah, absolutely.
Hugh: Okay, cool. Thanks, Walter.
Walter: Thanks.
Hugh: All the information in this podcast is for educational and informational purposes only and is not trading or investment advice.
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