Steps
- One bad fill or one stop-out triggers “risk tightening.”
- Stop shrinks into noise.
- Stop-out probability rises; you re-enter repeatedly.
- Costs and small losses stack; mental state degrades.
- You take the “big one” out of frustration.
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 max attempts rule (often 1–2).
- If stopped in noise twice, switch regime or stop trading.
- Widen stop + reduce size, instead of shrinking stop.
- 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
Deep dive
There’s a hidden belief in this chain: “I can control loss size by making the stop smaller.” In noisy regimes, you control loss size by taking fewer attempts.
Field checklist
- Measure spread before entering. If it’s abnormal, you’re trading the wrong product at the wrong time.
- If volatility expands, reduce size first. Don’t “solve” it by widening stops with the same size.
- Avoid the predictable liquidity holes: rollover, session open/close, first minutes after data.
- Assume your stop may fill worse than your entry. Price the worst-case, not the brochure.
- If you cannot explain where liquidity comes from, trade smaller.