Why Is It Hard to Stop Trading After Losses? | TU Research

Losing money is an unavoidable part of trading, but what happens after a loss can be more important than the loss itself. Some traders stop, reassess their strategy or reduce their exposure. Others immediately open another position, hoping to recover their money before the trading session ends.

This behavior is commonly known as revenge trading. It occurs when the desire to recover previous losses begins to influence trading decisions, potentially leading to larger positions, more frequent transactions or violations of established risk limits.

The research aims to answer key questions:

• How do traders react after a losing trade?

• How common is revenge trading?

• Do traders increase position sizes after consecutive losses?

• Why do traders continue trading after losses?

• How often do traders violate daily loss limits?

• Does trading frequency increase after losing streaks?

• Does revenge trading differ across Forex, crypto, CFD and binary options markets?

• What makes traders stop after a losing streak?

Findings

Institutional validation

Institutional research suggests that trading losses can influence subsequent risk-taking, while frequent trading and leverage may amplify financial setbacks.

The European Securities and Markets Authority examined retail trading risks in its Trends, Risks and Vulnerabilities report, March 2026. ESMA estimates that retail investors in EU leverage barrier products experienced average monthly returns of approximately −1.1%. The regulator identifies trading costs, amplified market exposure and forced position closures as important contributors to negative outcomes. While the report does not directly examine revenge trading, it illustrates the risks associated with increasing exposure after losses.

In Do Behavioral Biases Affect Prices?, Coval and Shumway (2005) studied professional futures traders at the Chicago Board of Trade. They found that traders who lost money in the morning regularly assumed above-average risks during afternoon trading. This provides direct evidence that previous losses can influence subsequent risk-taking, even among experienced market participants.

Barber and Odean examined excessive trading in Trading Is Hazardous to Your Wealth. Analyzing 66,465 brokerage accounts, they found that the most active individual investors earned annual returns of 11.4%, compared with 17.9% for the market. Their findings suggest that increased trading activity can reduce investment performance, particularly when transaction costs and overconfidence influence decisions.

Theoretical research

The tendency to continue trading after losses can be understood through loss aversion, reference-dependent decision-making and the desire to break even.

Kahneman and Tversky introduced this framework in Prospect Theory: An Analysis of Decision under Risk. Their research suggests that people evaluate financial outcomes relative to reference points, such as their initial investment or account balance. Losses can carry greater psychological weight than equivalent gains, potentially influencing subsequent risk preferences.

For example, a trader who starts with $2,000 and loses $200 may become focused on restoring the account to its original balance. Instead of evaluating the next trade independently, the trader may prioritize an opportunity that could recover the entire loss.

Thaler and Johnson examined this mechanism in Gambling with the House Money and Trying to Break Even. Their experiments found that previous losses can make risky opportunities offering a chance to break even particularly attractive. This helps explain why some traders increase position sizes or open additional trades after losing money, even when the new opportunities do not offer better expected returns.

Another related mechanism is the disposition effect. In Are Investors Reluctant to Realize Their Losses?, Odean found that individual investors were more willing to realize gains than losses. Although holding losing positions differs from revenge trading, both behaviors can reflect reluctance to accept unfavorable financial outcomes.

However, continuing to trade after a loss is not necessarily irrational. A trader following a predefined strategy may legitimately open another position. The distinction lies in whether the decision is driven by a new market opportunity or by the psychological need to recover previous losses. This provides the theoretical basis for examining whether retail traders change their position sizes, trading frequency or risk limits following financial setbacks.

Survey data

To examine how trading losses influence retail decisions, the TU Research framework explores post-loss behavior, recovery motivations, position sizing, trading frequency and risk-management discipline.

Methodology

The study was conducted using a structured online survey based on the CAWI methodology.

• Sample composition: 1,350 retail investors.

• Coverage: North America, Europe, Asia, Latin America, Africa and the Middle East.

• Age: 18–60 years old.

• Participation criteria: respondents who currently invest or trade financial assets.

• Statistical confidence: 95%.

• Estimated sampling deviation: ±2.7%.

Research team

The study was conducted by our experts:

• Anastasiia Chabaniuk (Author, TU research) – research design and interpretation.

• Chinmay Soni (Fact-checker) – data validation and statistical verification.

• Ciaran Ryan (Editor-in-Chief) – editorial and methodological supervision.

• TU research team (Andrey Mastykin, Oleg Tkachenko) – data collection and analysis.

How do traders react immediately after losing money?

Respondents were presented with the question of what they typically do immediately after a losing trade.

Insight: Taking a break is the most common response at 31%, while 18% immediately look for another trade to recover their losses. However, 24% continue according to their strategy, showing that trading after a loss does not necessarily indicate revenge trading.

How common is revenge trading?

The questionnaire measures how often traders have opened positions during the previous 90 days mainly to recover losses, even though those trades did not fully meet their usual entry criteria.

Frequency of recovery-driven trading:

• Never – 57%;

• Once – 17%;

• Two or three times – 14%;

• Four or more times – 7%;

• Cannot remember – 5%.

Insight: 38% report at least one instance of recovery-driven trading, while 21% report doing so at least twice. This suggests that revenge trading may range from occasional emotional decisions to repeated behavioral patterns.

Do traders increase position sizes after consecutive losses?

The questionnaire examines how position sizes change after two or more consecutive losing trades.

Insight: Increasing position size is the most common individual response at 29%. However, 50% either reduce their positions or stop trading temporarily, indicating that losing streaks may encourage both risk-seeking and risk-avoidance behavior.

Why do traders continue after losses?

Traders who typically continue trading after losses are asked to identify their main motivation.

Main motivation for continued trading:

• A new opportunity meets my strategy – 39%;

• Recover the money I just lost – 28%;

• Avoid ending the day with a loss – 15%;

• Believe the next trade is more likely to succeed – 10%;

• Trading is part of my regular schedule – 6%;

• Other / not sure – 2%.

Insight: Strategy-based opportunities are the leading motivation at 39%. However, 43% cite recovering losses or avoiding a losing day, suggesting that previous financial outcomes can influence subsequent decisions.

Do traders violate their daily loss limits?

The questionnaire examines whether traders with predefined daily loss limits have continued trading after reaching those limits during the previous 90 days.

Insight: 34% of traders with predefined limits report violating them at least once. This suggests that establishing risk-management rules does not necessarily guarantee that traders will follow them under financial pressure.

Does trading frequency increase after losing streaks?

The questionnaire examines how trading frequency changes after three consecutive losing trades.

Trading frequency after three consecutive losses:

• Trade more often – 27%;

• Maintain normal frequency – 22%;

• Trade less often – 17%;

• Stop trading temporarily – 21%;

• Depends on market conditions – 10%;

• Not sure – 3%.

Insight: 27% increase trading frequency after a losing streak, while 38% reduce activity or stop temporarily. This suggests that losses do not produce a uniform response: some traders seek faster recovery, while others become more cautious.

Does revenge trading differ across markets?

The research framework compares recovery-driven trading according to respondents' primary trading market.

Insight: Binary options traders show the highest estimated prevalence of revenge trading at 47%, followed by cryptocurrency traders at 40%. However, these differences do not establish that particular markets cause revenge trading. Trading experience, leverage, activity levels and other factors may influence the results.

What makes traders stop after a losing streak?

The questionnaire examines which factor is most likely to make traders stop after several consecutive losses.

Main reason to stop trading after losses:

• Daily loss limit reached – 32%;

• Emotional stress – 23%;

• Loss of strategy confidence – 17%;

• Maximum trades reached – 12%;

• Insufficient trading capital – 9%;

• Continue if opportunities remain – 5%;

• Other / not sure – 2%.

Insight: Predefined loss limits are the leading stopping mechanism at 32%, followed by emotional stress at 23%. This suggests that some traders stop according to established rules, while others respond only after experiencing psychological pressure.

Practical implications for retail traders

Trading losses are unavoidable, but the decisions made immediately afterward can determine whether a setback remains limited or develops into a larger financial problem.

• Separate losses from new trading decisions. A previous loss does not make the next trade more likely to succeed. Evaluate each opportunity independently.

• Set a maximum daily loss. Define an acceptable loss limit before trading and avoid changing it in response to frustration.

• Avoid increasing position sizes solely to recover money. Larger positions may accelerate recovery, but they also increase potential losses.

• Recognize emotional triggers. Urgency, frustration and the desire to finish a session without losses can influence risk-taking.

• Monitor trading frequency. Additional trades increase exposure to spreads, commissions and market risk without guaranteeing better performance.

• Use written entry and exit criteria. A predefined trading plan can help distinguish legitimate opportunities from recovery-driven decisions.

• Consider taking a break after consecutive losses. A pause can create time to reassess market conditions and avoid impulsive decisions.

• Evaluate net profitability rather than individual wins. Trading performance should reflect transaction costs, position risk and long-term consistency.

Choosing a broker with competitive trading conditions does not prevent revenge trading or guarantee better results. However, understanding transaction costs and leverage requirements can help traders assess the financial consequences of placing additional trades after a loss.

Data sources and methodology

• European Securities and Markets Authority. Trends, Risks and Vulnerabilities, No. 1, 2026. March 2026. Analysis of leveraged retail investment products, trading costs, forced position closures and investor losses.

• Coval, J. D. & Shumway, T. Do Behavioral Biases Affect Prices?. The Journal of Finance, 60(1), 2005, pp. 1–34. Empirical research on loss aversion and subsequent risk-taking among professional futures traders.

• Barber, B. M. & Odean, T. Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. The Journal of Finance, 55(2), 2000, pp. 773–806. Analysis of trading activity and investment returns across 66,465 brokerage accounts.

• Kahneman, D. & Tversky, A. Prospect Theory: An Analysis of Decision under Risk. Econometrica, 47(2), 1979, pp. 263–291. Foundational research on reference-dependent financial decision-making and loss aversion.

• Thaler, R. H. & Johnson, E. J. Gambling with the House Money and Trying to Break Even: The Effects of Prior Outcomes on Risky Choice. Management Science, 36(6), 1990, pp. 643–660. Experimental evidence on prior outcomes and break-even risk-taking.

• Odean, T. Are Investors Reluctant to Realize Their Losses?. The Journal of Finance, 53(5), 1998, pp. 1775–1798. Empirical research on the disposition effect.

• IdSurvey. CAWI Methodology.

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Team that worked on the article

Anastasiia Chabaniuk

Educational Content Editor

Anastasiia has 17 years of experience in finance and content marketing. She believes that the support of information and expert opinion is very important for the success of investors and new traders.

Learn about our editorial policies

Ciaran Ryan

Editor at Traders Union

Ciaran Ryan is a veteran financial journalist based in South Africa, where he covers cryptocurrency, mining, stock markets, and governance for Moneyweb. He also hosts the weekly Moneyweb Crypto Podcast.

Chinmay Soni

Head of Fact-Checking Department

Chinmay Soni is a financial analyst with more than 5 years of experience in working with stocks, Forex, derivatives, and other assets. As a founder of a boutique research firm and an active researcher, he covers various industries and fields, providing insights backed by statistical data.