91% of traders lose money. The reason isn’t bad luck—it’s this mental trap

The market dropped significantly overnight. Your portfolio starts bleeding red the next morning. The first instinct? To win it back. You open your trading app before breakfast, staring at the screen like it owes you an apology. What happens next is not strategy. It is revenge trading.

Revenge trading is not just a bad habit. It is your brain playing tricks on you. After a loss, the brain reacts the same way it does to physical pain. It demands relief. And in markets, that relief often takes the form of a desperate trade that almost always makes things worse.

SEBI reports show that more than 91% of individual traders in equity derivatives lost money. Their collective losses crossed ₹1.05 lakh crore, a 41% (₹74,812 crore) jump from the previous year. The average loss per trader was about ₹1.1 lakh.

It’s not just bad luck; it’s a pattern. What looks like misfortune often shows deeper habits. Many of you are losing capital because you won’t step back and assess the situation.

The illusion of control

Every trader swears they are being rational. Yet the moment they see red, logic just walks out of the room. You convince yourself you are being wise, buying more at a lower price, and taking advantage of the situation. But the truth is, you are just trying to feel in control again.

Daniel Kahneman explained this mental trap in Thinking, Fast and Slow. Our brain operates in two modes. One is fast, emotional, and impulsive; he called this System 1. The other is slow, deliberate, and logical, and this is System 2. After a painful loss, System 1 hijacks your decision-making. It whispers, “Just one trade, and you can fix this.” The slow brain, the one that should pause and calculate, is too drained to intervene.

Traders who face big losses often trade more in the next session.

How the brain flips its risk switch

Kahneman and Amos Tversky identified a pattern in how people handle risk. They called it the Fourfold Pattern of Risk Attitudes. It shows why investors are careful when they should take risks and reckless when they need to be careful.

When the chance of profit is high, we turn conservative. We book gains too early. When the chance of a small loss appears, we panic and close trades. But after a major setback, something flips. The pain of being down becomes unbearable, and we start chasing low-probability, high-risk bets. Anything that offers a shot at recovery feels rational, even if it is catastrophic.

Loss aversion means the pain of losing money feels about twice as powerful as the pleasure of gaining it. That imbalance makes traders chase losses. Instead of cutting them, they fall into a psychological spiral, just losing money.

That is how equity traders migrate to options or futures after a continuous losing streak. It is not a strategy. It is your emotional System 1 driven saying, ‘Hi, you need to do this to recover your money.’ You are not calculating probabilities. You are trying to erase pain.

The possibility effect: When hope turns into a trap

In the Thinking, Fast and Slow framework, the Possibility Effect describes our tendency to overvalue small chances of a big win. That is why people buy lottery tickets. It is also why traders hold on to losing options that have a low chance of recovery.

Once your portfolio turns red, you start treating hope as a strategy. You tell yourself that one perfect trade will fix everything. You inflate position sizes, stretch stop-losses, and ignore your own risk rules. You start chasing miracles over math.

Technology is fueling the fire

Trading apps have made revenge trading effortless. Every notification, price alert, and flashing P&L number keeps your fast brain on high alert. The frictionless design of these apps is not accidental. It is engineered to keep you engaged.

And engagement, in trading, usually means exposure. Ease of access makes emotional trading harder to resist. The market does not need to manipulate you. Your phone already does.

Breaking the Spiral

The antidote to revenge trading is not willpower; it is structure. Once your mind is emotionally charged, discipline alone cannot save you. You need a cooling-off mechanism that forces the slow brain back into control.

Here is a framework to rebuild sanity after a big loss:

Pause completely.

Step away from trading for at least two weeks. No test trades, no intraday experiments. Let the emotional residue fade.

Run a post-mortem.

Write down what went wrong. Entry timing, overconfidence, position size, and ignoring stop-loss. Seeing it in clear terms eliminates denial.

Do the math of recovery.

Remember, a 50% loss requires a 100% gain to break even. Write that down. Look at it before you place your next trade.

Redefine your risk per trade.

Cap it at a fixed percentage of your portfolio. For example, if you are risking 5%, cut it to 2%.

Re-enter the market slowly.

Start with half-size positions and strict limits. Let consistency rebuild your confidence, not blind luck. Long-term investing vehicles such as SIPs, mutual funds, or ETFs can act as stabilizers. They allow you to rebuild capital passively while your active mindset cools down. The goal is not to avoid risk but to rewire how you handle it.

Add accountability.

Share your trading journal with a mentor or peer. You are less likely to lie to yourself when someone else can see the numbers.

Over time, you learn that control in markets does not come from predicting moves. It comes from controlling yourself.

The uncomfortable truth

The market doesn’t care about your comeback story. It doesn’t care that you lost sleep, that your margin got wiped, or that your Telegram group promised a breakout.

The market rewards discipline and punishes emotion. Every rupee you lose to revenge trading is tuition paid for the same lesson: you are not bigger than your brain’s wiring.