The High Performance Trading Blog

Anatomy of a Blow Out Trade

Jan 12, 2024

Despite what you may have read or heard there are no trading secrets. If you want to succeed in trading what matters first and foremost is you have to take your losses quick, there is no way around it. 

And today I am going to share with you the Anatomy of a Blowout Trade so that you can learn how to become aware of your own unconscious trading patterns and start taking charge of the improvement of your trading performance. 

When we talk about how to generate profits we mostly talk about strategies that give us an edge in the market 

Let's first define what a strategy is. A strategy is a sequence of individual steps that get you a certain outcome. What most don't realise is that we actually have a strategy for everything we do in life. For example everyone has an unconscious strategy on how to brush teeth or how to put pants on.

This is really useful to realise, because this means that not only do we have an unconscious thinking strategy for routine tasks such as getting dressed, we also have a repetitive unconscious thinking strategy that leads to blow out trades. 

The best part is that once we become consciously aware of this unconscious thinking strategy, we have the power to intercept any self-sabotaging behavior that previously would creep into our thinking.  

With this newfound awareness we now can immediately stop the self-sabotage in its tracks. In coaching we call this a ‘wellness approach’. We don’t try to fix past mistakes but engage proactively to ensure we can follow the proven paths to success in trading.

I had the privilege to examine the thinking strategies of countless traders and I found that there is common pattern of thinking that leads to exorbitant losses. 

The pattern has usually three phases to it: 

Phase 1  

When the trader enters a position the intentions are to follow the plan and exit at a pre-determined level.  

Usually it’s a monetary or a technical exit. Monetary exit means when the trader sets the take profit or stop loss at a percentage or ratio, let’s say 1% for example or a 2 to 1 Profit to Loss Ratio. 

Technical exit means when the exit is determined based on at a certain level or price action on the chart. 


Phase 2:  

Everything is hunkydory, the trade goes into a profit and the trader feels pretty chuffed about it. But suddenly the price action changes and the trade starts to turnaround turning from a profit into a loss. That's often the beginning when uncomfortable emotions such as disappointment or annoyance are being experienced. But once price is getting close to the stop loss and these emotions start to becoming more and more intense the more the trade edges towards the stop loss. 

Despite the traders determination to honour the stop loss, they start fighting all these emotions that scream “move the stoploss”! 

Suddenly the self-talk has changed from 'calm determination to follow the plan' to 'two monkeys fighting in the trader's mind'. One monkey urges to move the stoploss, the other is fighting to stick to the exit strategy. And the reality is that for the majority of traders, this fight is won by the monkey who urged to move the stoploss.  

Let’s have a closer look what actually unfolds in this moment in time: 

The exit strategy is questioned, and every time price gets close to the new stop loss the goal post for the stop level gets moved. In your mind memories of past events where the trade was closed out by one tick before rebounding and going all the way back to your profit target become alive.  


Phase 3:

The trade moves even further away from the entry, and instant relief sets in that the stop loss was moved and the trade is still in play. The urge to avoid taking a loss is so strong, it is almost impossible for the trader to think clearly now. The hopeful thought that a bounce back into profit is imminent becomes omnipresent.  

However it's all wishful thinking as the trade moves closer and closer to the stop loss and the old intense discomfort creeps up again..  

A quick glance at the PnL and shocked the trader realises that the loss has now become significant, being by far greater than initially planned and so it would become difficult to recover if the loss would be realised. But a quick calculation of the % of drawdown awakens the trader’s fighting spirits. Nobody wants to lose that damaging amount of money and random self-promises to exit the trade as soon as it bounces are being made.

And the bounce comes! But now it doesn’t look like it’s a bounce, but it is the anticipated reversal! This is the real deal the monkeys are screaming! And now, hope takes over that the entire loss can be recovered. Not only that, confidence that this is the anticipated reversal kicks in and now the trader enters in a second trade adding to the losing position. Why not taking advantage of the even better price, right? 

Euphoria takes over as the trader senses the opportunity to make even more profits! But once again euphoria faints rapidly as the anticipated bounce doesn’t materialise and the trade moves deeper and deeper into a loss. The result is now the trader is stuck in two losing positions (if not more!) that are not being closed and a drawdown that has eaten even deeper into the capital.  

Worry about the size of the loss and the subliminal fear of not being able to recover it hinder the trader to close out the position. Ultimately the loss gets so big, that either the trader only realises that if the positions aren’t closed the risk to blow the account is imminent or the account is actually going to be liquidated whilst the trader watches it feeling paralysed.  


Becoming aware of these three phases and being mindful of the thoughts that lead to the temptation to not honour the stop loss is the first step to becoming a more disciplined trader who takes the losses as per the risk management plan. Through consciously analysing the thought process red flags can be noticed and instantly dealt with.

Only now the trader has an opportunity to modify the automatic responses to previously daunting events and build a long term sustainable solid trading career.

I trust you found this explanation of how blow out trades unfold already helpful. If you like to learn more about your hidden thinking processes and explore practical solutions for this issue, you can contact me here..

  1. Get your “The Winning Trader's Money Mindset Free Report”. 
  2. Create a solid foundation with this free 4 Pillars of Trading Success Masterclass 

3. There are plenty of helpful videos for you on my Youtube channel


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