Ask a blown-up trader what went wrong, and they'll usually point to a specific trade. A bad call. An unexpected news event. "If only I hadn't taken that one trade..."
But that's not the real reason. The real account killer is something they did dozens of times before that final trade.
It's Not the Strategy
New traders obsess over entries. "If I just find the right indicator, the right pattern, the right system..."
But plenty of traders with mediocre strategies are profitable. And plenty with excellent strategies blow their accounts. The difference isn't the strategy.
It's Not One Bad Trade
One losing trade rarely destroys an account. What destroys accounts is the response to losing trades. The spiral that turns a small loss into a catastrophic one.
It's Position Sizing After Losses
Here's the pattern:
- Take a normal loss—maybe 1% of account
- Feel the urge to recover
- Double position size on the next trade
- Lose again—now down 3%
- Double again—"I need to make this back"
- Lose—now down 7%
- Repeat until account is significantly damaged
The math is brutal: After a 50% drawdown, you need a 100% gain just to get back to even. Most traders never make it.
Why This Happens
It's not stupidity. It's psychology.
After a loss, your brain experiences pain. Real, measurable pain. And it wants that pain to stop. The fastest apparent solution? Win back the money.
But to win back fast, you need to bet bigger. And betting bigger after a loss is the worst time to take more risk—you're already in a compromised emotional state.
The Fix
It's simple in theory, hard in practice:
Rule: After a loss, reduce position size, not increase it.
Some traders cut to 50% of normal size after a loss. Some stop trading for the day after two consecutive losses. The specific rule matters less than having a rule and following it.
The Position Size Rule
Your next trade after a loss should be smaller, not bigger. This single rule would have saved more accounts than any indicator or strategy ever invented.
How to Make It Stick
- Set a daily loss limit — When you hit 2-3% of your account, you're done for the day
- Pre-commit in writing — Write down your position sizing rules before you start trading
- Track your compliance — Log whether you followed your sizing rules for every trade
The traders who survive long enough to become profitable aren't the ones with the best entries. They're the ones who protect their capital when they're wrong.
Go Deeper
This pattern is part of the revenge trading cycle. Learn why it happens and how to break it.
Read: Revenge Trading: What It Is and How to Stop It