Additionally, it may be interesting to see all four combinations for trust feedback:
-   Use positive feed back for.
-   Don’t use positive feed back for.
-   Use negative feed back for.
-   Don’t use negative feed back for (OP).

I'd like to add to this topic: before leaving feedback, ask yourself if your feedback makes the forum better, and (if applicable) is it worth destroying someone's reputation?

You should be able to explain why this is true:

Mdayonliner also has a good discussion thread about this.

If it is your intention to enlighten others on the use of the system, perhaps promote the 3rd option. I personally see Neutral as a tool for notes on the account/users behavior whether positive or negative, but not a scam/trade dispute.

The best way to handle it is to appeal the red trust with the person who wrote it. However, the only way the person's red tag shows up on the trust numbers for an individual depends on their trust settings. Otherwise, it just shows up under the section "untrusted feedback." Most people have not fiddled with their trust settings, so it is set on default trust with a depth of 2. If you have customized your trust setting and want to see what your score looks like under the default settings, just go to a page with a post of yours in a section that displays the trust scores. Then after the url just add ;dt. If the tag doesn't show up on default trust, I wouldn't be too concerned about it, although these false tags may be more of a concern if there is a big move for people to start to customize their trust lists. For example, on my untrusted feedback I have someone accusing me of spreading a fictitious disease to newbies.  

First thing you need to do - stop worrying about ludicrous retaliatory feedback. It's unavoidable but it has no effect on you and you shouldn't waste time appealing it. Trust is not moderated. You will not get it removed unless the sender agrees to do that (in rare cases extreme trust spam may be removed but don't count on that).