What it means
Revenge trading is trading to win back a loss quickly: taking trades outside the plan, raising size, or both. It feels like correcting a mistake; in practice it magnifies the next losses.
Why traders use it
Losses hurt more than gains please, so after a loss the urge to recover is strong. Raising size after losses means the biggest positions arrive during the worst streaks.
Chart examples
Size raised after losses
How to identify it objectively
- 1Position size increases right after losses.
- 2Trades are taken sooner than usual after a stop-out.
- 3Setups do not match the written plan.
- 4Daily loss limits are ignored.
Bullish use
- 1Fixed risk per trade regardless of the last result.
- 2A pause after two or three consecutive losses.
Bearish use
- 1Any rule that increases size after a loss (martingale-style) is a red flag.
What confirms it
- Your journal shows constant size through streaks.
What invalidates it
- Size changes based on emotion rather than on equity rules.
How a hypothetical setup is built
Entry
Only the planned setups, after a mandatory pause following a loss streak.
Stop
Normal structural stop.
Target
Normal plan target; size unchanged.
A hypothetical illustration of how the concept is turned into a plan, not a recommendation. Practise it on a paper account first.
Related concepts
- Trading PsychologyFOMO and Chasing Entries
- Risk Management & StatisticsRisk of Ruin
- Risk Management & StatisticsMaximum Drawdown
Historical testing
The drawing uses a made-up list of 12 trades. At a constant size of 1 the sequence ends at −2R; raising size to 2, 3 and 4 after losses turns the same trades into −9R.
Limitations: when it fails
- Rules work only if followed under stress; pre-commit to them (for example a hard daily loss limit).
Knowledge check
Pick an answer to see the explanation. Nothing is saved.