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Randy Frederick on Revenge Trading

Randy Frederick discusses his thoughts on revenge trading.

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Well, one problem that new traders run into often is this thing that we call revenge trading, which is that when things don’t go well they will try to attempt to figure out a way to get paid back for any losses that they might have sustained. Now, I haven’t found that people do this so much with the market, itself, because the market is just too big of an animal for people to get their hands around, but for individual stocks I’ve found that people do this all the time. And this is especially true for stocks that were highly rated or where a lot of analysts thought that it was a good investment, and things just didn’t turn out. The reality is no matter how many sources you consult you’ll always going to find stocks that don’t follow what they should follow—they don’t go up when they’re supposed to go up. But if someone buys a stock and it goes against them, they’re oftentimes very hesitant to let it go because they get to this mindset of ‘That stock owes me and I’m going to hang onto it until it pays me back for the losses that I’ve had.’ They end up holding the stock until it continues to go down a lot further. The reality is that stock doesn’t know what you paid for it, it doesn’t care what you paid for it, and certainly doesn’t know who you are or doesn’t owe you anything. So the best plan is typically to just simply get out of the position and then move on and try to find something that’s probably better.

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