The small revenge trade

[Fairman]

The small revenge trade

A big revenge trade is easy to spot and easy to condemn. The smaller version is sneakier. A two pip loss stings, and the next trade is taken a little quicker, a little looser, with a touch more size, to get back to even.

On a long timeframe, one revenge trade is a rare event. In scalping it can happen twenty times in a session, in forms so mild that none looks like a mistake.

The tell is timing. A trade taken within seconds of a loss, without waiting for a proper setup, is likely emotional. A trade whose entry condition would have been met anyway is fine, but one that was only half-satisfied is not.

Measuring the gap between the close of a loser and the next entry shows a lot. Plotting the results of trades by that gap often reveals that quick re-entries perform worse than the rest.

A simple rule such as a thirty second pause after any loss gives the mind time to reset. It does not need to be long. It only needs to exist.

A related pattern is the size creep after a loss, where the next trade is a little larger to recover faster. Plotting size against the result of the previous trade shows whether it is happening.

One effective fix is a hard cap on size per trade and a minimum wait after a loss. Both are simple, both are boring, and both outperform willpower at the moment of the sting.

Some traders go one step further and write the cooling-off rule on a card taped to the monitor. The card does the arguing when the mood is not up to it.

What do the results look like for trades taken immediately after a loss versus after a pause?