Drawdown Management
[24/11/2025]
A few tips for psychlogical and risk management when it all feels like it's falling apart.
1] Flatten the book and rebuild. I've learned this lesson the hard way a few times. You're trading a hyper-liquid asset-class, so should be unafraid of using the cheapest 'eject' button of all. When a line item morphs from a plan to a prayer, it's time to regroup. Clear book; clear mind. Helps to eradicate unhealthy biases and instead of 'digging your way of out of a hole', the mindset can be 'starting again from... now!'.
2] Simplify the process. Return to cyclical trade lifecycle. A: Think, research, chart. Consider about the cross-asset rationale. Plan the idea and levels. B: Execute the trade; stick to the desired entry levels. C: Cut the risk; profit/loss. Ensure you preserved the risk-reward ratio as this is ultimately the only thing that will safe-guard your process as the data series builds. You're just experiencing a temporary probability distortion as the data series is not yet large enough. D: This, for me, is the most important and the quadrant often missed, which can interupt the cyle of deep thought. Closure. Analyse the trade; why did it work? What could've been done to improve it? Which of your trade-planning assumptions were correct and which were not? Journal this part; it can help minimize recency bias into A#2 and serve as an antidote to 'revenge trading'. Repeat.
3] Filter for half-baked ideas during Stage A. Use a star system. Only if >3/5 stars are satisfied; execute.
4] Actively eradicate human bias. Stare at the price panels with a neutral mind. Write all of the support/resistance levels out with equal effort attributed to all instruments. Don't resort to the products you've had your biggest wins with or are most familiar with. Your adge is in your identification of asymmetry and opportunity. Sure, you've got to be comfortable, but these multi-trillion dollar markets are sufficiently liquid and populated that you may be overestimating your single-instrument edge.
5] Take time away from the screen. It is unlikely that the next 4/5* idea, for which youve thoroughly completed the quadrant A process above, will present itself to you within hours of you just taking a large loss. Even days. The benefit of you approaching the next capital deployment with a clear mind and lower absolute stress level will by far outweigh the opportunity cost of the hours or sessions spent spectating vs participating. 'Chopped up' is the devil.
6] It happens to everyone. Every risk taker, every asset class. The difference is in the humility of the response, in my experience, as well as how far it's left to run before step 1 occurs.
7] Don't forget to breathe. I've planned to write a post with this title, and will do. Relaxing into it; realizing most of the pressure is coming from yourself and the desire to succeed in what youre pouring all of your waking energy into. Above all else, realising you've not yet lost your seat and you’re still in the game. It doesn't take much to get back on track!