Steps
1) A trade goes against you and you don’t want to realize the loss.
2) You open a “hedge” instead of closing.
3) You now pay spread twice and often pay financing on both legs.
4) The thesis rots: you stop thinking in invalidations and start thinking in offsets.
5) Eventually you unwind at the worst time or keep the tangle until it becomes a slow liquidation.
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
• Hedge only as part of a planned structure (and define the unwind rule up front).
• If the hedge is emotional, close the original trade. Take the information.
• If you can’t explain your net exposure in one sentence, you’re not managing risk.
- 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
- 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.