Steps
- Trade moves against you, but the thesis feels ‘still right’.
- You add to improve average price.
- Margin usage rises and flexibility disappears.
- Volatility increases or a gap hits.
- Broker close-out forces liquidation into the worst liquidity.
Intervention points:
- Cut size at the first sign the chain is forming.
- Pause when you start “fixing” the last loss with a new trade.
- Stop trading when execution quality degrades.
Antidote
- Use a hard rule: add only when the market is paying you (in profit), not when it’s charging you (in loss).
- Set a maximum margin usage ceiling well below broker close-out.
- If you can’t survive without adding, the position was too large to begin with.
- Stop the sequence: one loss is information, two losses is a warning, three losses is a system failure. Have a hard cut.
- Reduce degrees of freedom: fewer pairs, fewer timeframes, fewer discretionary choices.
- Re-enter only after reset: calm state, checklist passed, size reduced.
Notes
Field checklist
- Define max heat (total open risk). You can’t manage what you don’t cap.
- Keep a free-margin buffer that survives a normal shock and a bad fill.
- Scale down after drawdown. Your job is to stop the bleed, not to win it back.
- Treat correlated positions as one position.
- Plan the gap: what happens if price jumps through your stop?