Steps
Size up because recent wins feel ‘safe’
Volatility spikes and spreads widen
Stops slip and losses exceed plan
Margin used jumps; broker raises requirements
Positions are closed under duress (forced liquidation)
Psychological collapse leads to revenge or quitting
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
Engineer margin buffers and size for worst-case fills. If liquidation is possible, reduce exposure now.
- 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
Why it repeats
This chain is timeless because it’s mechanical. It doesn’t require you to be “wrong”. It only requires you to be fragile.
Related truths: Forced liquidation is the only thesis and Stop-losses fail in volatility spikes.
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.