The Need for Kill Switch

I’m going to start with my own experience first.

So, when I look back at the biggest losses that I had in my trading journey, I come to a very humbling realization; that I never incurred a single big loss because of the market. It was not like the market was conspiring against me. The market wanted me to take a loss and neither did I incur any of these big losses because of somebody else.

So, these big losses; they’re always, always caused by me.

It was I who became greedy and took excessive risks. It was I who over traded in the desperation of recovering my losses. It was I who could not control my emotions and kept fighting with the market. So, the bottom line that I’m trying to convey here is that whenever we are incurring a big loss, it is because of our own mistakes.

Looking back, I can tell you that these losses are like stars in my mind. Even though they happened several years ago, they are still fresh in my mind. Some of the stocks that I got tangled with, I vividly remember every trade and what happened on that particular day.

Dark Days

So, these days can be very devastating in the life of a trader. That’s why I call them dark days.

Now I was fortunate enough to have bounced back from many of these dark days. Now, of course, I have developed a system with enough checks and balances not to see those kinds of things. I remember that a lot of traders in my time were not as lucky as me and they were not able to survive and are out of the market as of now.

Aside from the loss aspect, these dark days also bring light to the duality of the mind. We think that we are one person with one mind, but that’s actually not true. We have two sides of the brain as I keep talking in many of these videos that we have a rational side, which understands the logic, which understands the risk, which understands the difference between right and wrong.

On the other hand, we have the emotional side. So, the primal side of our brain forces us to fulfil its primal urges and eventually lands us in some very deep troubles. It is a trader’s job to make sure that the rational side always remains in charge.

Whenever the emotional side of the brain starts to dominate and the rational side starts to become weaker, we need to act swiftly before it becomes too late and we don’t commit some irreversible damage to our capital and our lives. For doing that, we have to use whatever tools are available at our disposal.

Introducing -The Kill Switch

Hence, recently Zerodha introduced a new feature called the Kill Switch, which stops the emotional side of the brain from getting out of control.

So, what is the kill switch?

Well, the kill switch is an option, which when enabled, stops you from trading for the next 12 hours.

Here is how it works.

Let’s say after taking a couple of trades in the morning, you are in incurring a big loss. If you keep sitting in front of the screen for the rest of the day, what will most likely happen is that to recover those losses, you will end up taking more trades and sometimes even with higher leverage.

The situation is only going to get worse from that point onwards because your rational mind is not in charge. At this point, what you have to do is that you have to force yourself to be out of trading for the rest of the day. The first thing that you have to do is to make sure that all your existing positions are closed and all the open orders are cancelled.

After that, you have to go to ConsoleàMy accountà Segments and there you find the Kill switch screen. This is where you can disable all the segments that you trade. For me, the most dangerous segment is Options because that is where you can incur a big loss.

Hence that is the first segment that I will disable. After disabling all those segments, you have to press continue and then confirm and you are done. From now, till the next 12 hours, you will not be able to place an order. If you do, you will get a message. One thing that you have to keep in mind is that for the next 12 hours any GTT order that you have in the system if they get triggered, will not get executed. So that is something that you ought to keep in mind, but I’m sure that in the grand scheme of things, it’s not that big of a deal. What this kill switch does is it gives you a break and it forces you to come back the next day with a more balanced mind and a better action plan.

Then when you are ready for trading, you can come back to this screen and can enable these segments and you will be ready for trading again. So, guys, this is it. This is the kill feature. I know that this is not a perfect solution, but it’s a good start. A lot of people will complain that why is it 12 hours, why not 24 hours?

Why not let the user decide how long they want to take a break? When I was going through Zerodha’s website, I saw that they have some plans to enhance this skill switch functionality. They are planning to have some kind of automation where you can define some maximum order position size for every instrument as a percentage of your overall trading capital so that the kill switch is automatically triggered.

To be honest, guys, I’m not a big fan of Zerodha or any of the brokers for that matter since I have had bad experiences with every one of them. However, you have to give credit where it is due. By introducing this feature, they are taking a hit on their revenue which means when you are not trading, they’re not making any money.

They are, of course not going to make any money from this feature that they have developed. From what I see, it is a very good sign that brokers are becoming more conscious and responsible to their customers. I’m hoping that other brokers in the industry will also take inspiration from this.

Hopefully, they will introduce similar features. Anyway, guys, use the kill switch as and when you need it. However, if you see it using more often than not, it means that you need to come up with a better system. You probably should be thinking about more of a rule-based system, some kind of an algo system so that you don’t have to struggle with these emotions on a daily basis.