Mechanism
A trade outcome is a mix of components:
- signal quality (edge),
- execution quality (spread, slippage, impact),
- sizing (risk budget),
- and behavior (overrides).
Most traders attribute losses to “bad entries” because entries are visible. Execution and sizing are less visible, but they often dominate.
Mis-attribution is expensive: it causes you to tweak the strategy when the real leak is friction or behavior.
Process upgrade: turn this truth into a rule you can actually enforce. If the rule can’t be enforced, it will be broken under stress.
- Write the trigger condition in observable terms.
- Write the action in one sentence.
- Write the penalty for breaking it.
How it kills accounts
Lose money → blame setup → add complexity → sample shrinks → performance degrades further → frustration → more changes → decay.
How it kills accounts:
- The rule exists only in your head.
- Stress arrives and you improvise.
- Improvisation becomes inconsistency.
- Inconsistency becomes random results.
- Random results become a slow bleed.
Rule that survives
Tag every trade with at least: regime, execution quality, and compliance (yes/no).
Track slippage/spread cost separately from signal results.
Change only one variable at a time, with evidence.
Rule that survives:
- Write the trigger in observable terms.
- Write the action in one sentence.
- Write the penalty for breaking it.
Example archetype
A strategy looks unprofitable live. When you separate the data, the signal is fine, but slippage and spread widening are eating the edge during the exact times you trade most.
Tell: if your rule isn’t enforceable, it’s a suggestion. Suggestions don’t survive stress.
Deep dive
Fix the real leak
Most “strategy improvements” are really execution improvements.
Related: Costs are a strategy and Most blowups are operational.
Glossary: slippage, spread, outcome bias.
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.