That Loss, I Almost Fell into the Same Old Trap Again
One evening in November 2023, just as the US session opened, gold was fluctuating around 1948. I judged it would break through 1955, so I placed a long order at 1951 with a stop loss at 1945, a distance of 6 dollars, and a lot size of 0.5. The price then surged to 1953 but quickly pulled back, hitting my stop loss directly and costing me $300. This was a normal stop loss, but at the time I thought, "I clearly got the direction right, just bad luck," so I immediately entered another long at 1948, increased the lot size to 1, and set the stop loss only 3 dollars away. The price continued to fall to 1945, stopping me out again for another $300 loss. By then I was a bit heated, with only one thought in mind: make back what I lost. I then shorted at 1943 with a 4-dollar stop loss, but the price rebounded to 1947, stopping me out for the third time. In just half an hour, I lost nearly $1,000.
That night I made a total of 7 trades, losing $2,800. In hindsight, only the first trade followed my system; the other 6 were all revenge trading. It's not that I didn't know the dangers of revenge trading, but when you're in the midst of it, that urge to "must win it back immediately" is almost impossible to suppress.
Three Hard Rules I Set for Myself
After that, I stopped trading for a week to reflect. I realized that my revenge trading triggers often come from feeling after a loss that the market owes me an explanation. To break this cycle, I set three rules for myself, and after nearly a year of following them, the effect is obvious.
Rule 1: Force myself to shut down the computer when daily loss reaches 2%. My account is $50,000, so 2% is $1,000. I used to always think "just give it one more chance," but now as soon as the daily loss hits this line, no matter what time, I close all positions and shut down the software. Once, right at the London open, I had two consecutive stop losses totaling over $900. I was about to take a third trade for a rebound, but remembering the rule, I stopped. As it turned out, gold trended down unilaterally for the rest of the day; if I had continued, I likely would have lost more.
Rule 2: After a loss, wait at least 30 minutes before entering again. These 30 minutes are not for idle waiting but for writing a trading journal: Why did I enter? Was the stop loss reasonable? If I could do it again, what would I do? Usually, by the time I finish writing, my emotions have calmed down. Once I went long at 1975 with a stop loss at 1970, but got stopped out for a $250 loss. I really wanted to short immediately at 1973, but forced myself to wait 30 minutes. After waiting, I found that the price had actually formed support at 1972; if I had shorted then, I would likely have been proven wrong again. Later, I went long at 1978 and exited with a profit.
Rule 3: Keep the lot size fixed for each trade, and never increase after a loss. I used to think "after a loss, I need to increase the lot size to win it back," but now no matter the situation, 0.5 lots is 0.5 lots, and I don't increase even when profitable. This rule sounds simple, but it's the hardest to execute because the potential profit from increasing lot size is so tempting. However, it is precisely this fixed lot size that prevents me from being badly hurt during consecutive losses.
Price Action Helps Me See the Market Clearly, Not Emotions
Revenge trading often happens when emotions are running high, and at that time, any indicator looks like a signal. My experience is to return to the most primitive price action: support and resistance, trend lines, candlestick patterns. These do not change because of your emotions.
For example, once I went long at 1930 with a stop loss at 1925, but the price fell to 1922 before rebounding, stopping me out and then rising all the way to 1940. At that time, I really wanted to chase the long, but when I looked at the chart, 1940 was exactly a previous resistance level, and the candlestick showed a long upper shadow, indicating heavy selling pressure. I gave up chasing the long, and later the price indeed fell back around 1940. If I had chased in emotionally, I would likely have lost another trade.
Now, after every loss, I first look at the 4-hour chart to confirm whether the major trend has changed. If the trend hasn't changed and it's just short-term fluctuation, I wait for the price to return to a key level before considering entry; if the trend has changed, I simply give up trading for the day. For example, last month, gold fluctuated around 2000, and I took two long trades that were both stopped out, losing $600. I looked at the 4-hour chart and found that 2000 was an important psychological level, and after multiple failed attempts to break higher, it formed a double top. So I stopped going long and waited for a short signal. Later, the price broke below 1980, and I shorted at 1978 and exited with a profit.
A Few Final Words
Revenge trading is a pitfall every trader encounters, and I am no exception. The difference is that some people are repeatedly harvested by it, while others use it as an opportunity to improve their system. My trading frequency is much lower now; sometimes I only make one or two trades a day, but my account curve is actually more stable. Last week, one day I shorted at 1955 with a stop loss at 1960, got stopped out for a $250 loss. I turned off the computer, went downstairs for a 20-minute walk, came back and wrote in my journal, and then didn't trade for the rest of the day. The next day, gold fell to 1940, and I went long at 1942, making $300.
I'm not saying this to show off, but to tell you: the urge to win it back immediately after a loss is human instinct, but the market won't change direction because of your emotions. Using rules to constrain yourself and price action to judge the market is more effective than any technical indicator.