Continue reading...Have you ever initiated a “revenge” trade? Most traders are well aware of this issue; but some of you may need an explanation.
What is Revenge Trading? A revenge trade is a reaction to one or more losses. Let’s say that you had a good profit run of a couple of months. Your gains were in the 30% category and you were riding high and frequently breaking out into the trader “happy dance”. Then one morning you were feeling quite full of yourself with an illusion of infallibility. In other words, you felt that due to your string of wins you couldn’t lose. Your confidence had exceeded your competence. This irrational exuberance or trader’s euphoria clouded your vision and diffused your focus. Just then the price action inched toward your stop and you gave into an overwhelming urge to move the stop. This behavior is due to a common bias that virtually every human being on the planet succumbs to at one time or another… loss aversion.
Loss aversion is the tendency for...
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