Steps
Portfolio built by tickers, not drivers
Shock hits liquidity and funding conditions
Correlations rise; multiple positions lose together
Hedges underperform; spreads widen
Margin/capital buffers shrink
Forced de-risking locks in losses
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
Diversify by drivers and stress-test crisis correlation. Keep dry powder and avoid hidden leverage.
- 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
Driver-thinking
Ask: “What would have to happen for all of these to lose at once?” If the answer exists, plan for it.
Related truth: Diversification collapses in crisis.
Field checklist
- Write the rule in observable terms: if X, then Y.
- Remove choices under stress. Choices become rationalizations.
- Track the precursor: what state were you in before the mistake?
- Make deviations costly (size down, pause, review).
- Turn lessons into gates, not notes.