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Making Losses Due to Revenge Trading? Turn on Zerodha’s KILL SWITCH in Kite and Chill Out!

India’s largest brokerage company Zerodha has come up with an exciting feature, ‘Kill Switch’ on its Kite platform.


Without any doubt, it is highly beneficial for all types of traders. But any stockbroker will encourage more trades as they get more revenue through brokerage, but Zerodha is innovative and has dared to bring this feature.


It will bring some losses in the short term for Zerodha for sure, but it will help its reputation as India’s largest broker by bringing in more clients in the long run.


What is Zerodha's Kill Switch and how to use it?


What is Kill Switch?


Kill Switch is a new nudge in the kite platform which allows users to avoid trading for the next 12 hours (once enabled).


“If you’re making losses, this new feature helps with your trading discipline and risk management by allowing you to instantly disable trading in one or more segments on Kite, forcing you to take a break from trading. Once a segment is disabled, you can only re-enable it after 12 hours” Nithin Kamath said in a post published on the Zerodha website.



How to Use Kill Switch?


If you want to use Kill Switch and disable trading,


Visit console –> Accounts –> Segments


Then turn on the kill switch for any selected segment, and it will be disabled within 5 minutes.


Once disabled, a trader can reactivate it only after 12 hours.


How to use Zerodha's Kill Switch?
Image - How to use Kill Switch?

It also helps the traders who want to avoid taking trades for some time (for whatsoever reasons). However, please note that one has to close all the open positions and cancel any open orders before enabling the kill switch in any segment.


At the moment, Zerodha’s Kill Switch is manual, and a trader has to enable it manually. However, Zerodha is working on giving this facility based on the maximum order and position size for every instrument as a percentage of overall trading capital.


For example, most successful intraday traders have a rule that not to lose more than 10% of capital on any trading day. If they set this 10% rule on the selected segment, then all the positions will be closed, and the kill switch will be enabled automatically once the loss reaches 10%.


However, we need to wait for some more time until Zerodha introduces this automatic feature.



Whether Kill Switch is Really Helpful?


Do you know that when a trader takes the trade, there could be only 5 possible outcomes?


Below are the 5 possible outcomes for any trade:

  1. A breakeven

  2. A small loss

  3. A small profit

  4. A big profit

  5. A big loss


If a trader gets rid of all the 'big loss' scenarios, he will stay in the market. Isn't it?

Now the question is how to identify such big loss cases?


Pareto’s 80/20 rule principle will help us. The law is simple, and it says, '80% of the results come from 20% of the causes'.


In simple words, a trader will have 2-3 fundamental issues associated with him, which results in over 80% of the losses in his trading.


Below are the main reasons which bring over 80% of the losses in the trading (in the same order):

  1. Revenge Trading

  2. Eagerness to trade every day

  3. Wrong position size


Revenge Trading

Every trader agrees that revenge trading is the main culprit in their trading.


Sometimes, traders take unnecessary trades either because of boredom or intend to make some trades and lose money.


It hits their ego (unconsciously), and they end up taking more trades in the second half, which gives a big blow to their capital.


Eagerness to trade every day

Many traders think taking some trades every day is like a ritual aspect of their trading. But that is not always the case.


Sometimes, the market waits for some fundamental information, and it doesn't show moves in any direction.


Participating in such market days is a suicidal act that can result in revenge trading later.


Don't forget this famous quote by Jesse Livermore – "There is time to go long, time to go short, and time to go fishing."


Wrong position size

Most of the traders don't realize the importance of position sizing until they blow off their capital!


Once again, the logic is straightforward.


Assume a trader risks 10% of his capital in one trade.


Then even if he has a good system with more accuracy, there is a possibility that he can get 5-6 failed trades in one stretch. Isn't it?