Psychology
Revenge Trading
"Opening impulsive positions after a loss to 'recover' quickly, most often leading to further losses."
In-Depth Definition
Revenge Trading is a destructive emotional behavior that occurs after a significant loss. The trader, frustrated and seeking to recover capital, enters positions hastily, often with a larger position size than usual, without respecting their trading plan. This cycle creates a downward spiral: emotional pressure increases, judgment deteriorates, and losses accumulate. The phenomenon is linked to loss aversion, a cognitive bias described by Kahneman and Tversky: the pain of a loss is felt twice as intensely as the pleasure of an equivalent gain. The golden rule to avoid Revenge Trading is to set a strict daily loss limit (Daily Loss Limit) and stop trading when it is reached, without exception.
StarQuant Insight
StarQuant can configure automatic alerts and trading blocks when a user-defined daily loss threshold is reached, protecting capital from impulsive emotional decisions.
Pro Tip
After a significant loss, impose a mandatory break (minimum 30 minutes, ideally the day). Analyze the loss objectively, document it in your journal, then return to the market only if your emotional state allows it.