Process
The Feedback Loop
How your recent trades tell you when to be in the market and when to step aside.
April 7, 2026
When the market gets tougher and trades stop working, most people do the opposite of what they should. Instead of listening and pulling back, they get frustrated and push harder. They size up to make back what they lost, they force trades that aren't there, and they convince themselves they just need to try harder. That's when people blow up. Not because they had a bad trade but because they refused to listen to what the market was telling them.
Something I figured out over time is that my recent trades already tell me everything I need to know. If my last four or five trades are getting traction and my portfolio is making progress, that's the market telling me to stay in and press. If they're getting stopped out and I'm flat on the year, that's the market telling me to step aside. My performance is a direct feedback loop of the type of environment we're in and it moves me in and out of the market without needing to predict anything.
Your Recent Trades
Positive Feedback
- Trades getting traction
- Portfolio making progress
- New buys working quickly
Get Aggressive
- Increase exposure
- Build larger positions
- Lean into it
Negative Feedback
- Getting stopped out more
- Hard to make progress
- Nothing seems to stick
Get Defensive
- Reduce exposure
- Pilot positions only
- Listen and wait
Let the next trades confirm or change the mode
The three environments
Strong (2024)
Feedback:
Trades getting traction. Portfolio making progress. New buys working quickly.
Psychology:
Easy money. Progress feels automatic. Poor risk management is often rewarded.
Action:
Aggressive. Increase exposure. Larger positions.
Choppy (Early 2025)
Feedback:
Stops getting hit. Hard to make progress. Nothing sticks.
Psychology:
Frustrating. Feels like it should be working but it's not.
Action:
Defensive. Pilot positions only. Reduce exposure.
Weak (2022)
Feedback:
Almost nothing works. Losses mount. Bull traps suck you in.
Psychology:
Unforgiving. Every bounce feels like the bottom but it's not.
Action:
Full defensive. Cash.
Not every market is the same and the feedback you get from your trades tells you which one you're in. When your trades work quickly and progress feels automatic, that's a strong market and the feedback is telling you to get aggressive and increase exposure. When your stops start getting hit and nothing sticks, that's choppy and the feedback is telling you to get defensive and shrink down to pilot positions. When almost nothing works at all, that's weak and the feedback is telling you to go to cash.
The thing that makes this so useful is that you feel the shifts in environment through your own results before you can see them in the market. Sometimes you look at the market and everything looks fine, but your trades are telling you a different story. Your stops are getting hit more, your new buys aren't following through, your portfolio isn't making progress. That's the environment changing and your feedback is picking it up before the charts make it obvious.
This is what keeps you from making the big mistake. Without the feedback loop it's easy to look at a bounce and think the bottom is in and put all your money back to work. Then the market rolls over again and you take a real hit. But if you're listening to your feedback you never go from zero to fully invested without first getting positive results. You start small, you put on pilots, and you only increase exposure as those trades start working. It's progressive and it protects you from yourself.
The thing that makes this so useful is that you feel the shifts in environment through your own results before you can see them in the market. Sometimes you look at the market and everything looks fine, but your trades are telling you a different story. Your stops are getting hit more, your new buys aren't following through, your portfolio isn't making progress. That's the environment changing and your feedback is picking it up before the charts make it obvious.
This is what keeps you from making the big mistake. Without the feedback loop it's easy to look at a bounce and think the bottom is in and put all your money back to work. Then the market rolls over again and you take a real hit. But if you're listening to your feedback you never go from zero to fully invested without first getting positive results. You start small, you put on pilots, and you only increase exposure as those trades start working. It's progressive and it protects you from yourself.
Seeing it in real time
Two periods on SPY where my feedback turned negative. Trades stopped working, stops started hitting, and the loop forced me to reduce exposure and get more defensive. I didn't need to predict the correction because the feedback told me to pull back before it happened.
Why it works
You don't have to predict anything. When the market is strong your trades work and you increase exposure. When it's choppy your trades fail and you pull back. You end up in the right position without ever needing to be right about the market because the system corrects itself.
It also inverts your emotions which I think matters more than anything else about it. After losses the impulse is to size up to make it back. After wins the impulse is to get cautious and protect what you've made. Both are backwards. The loop forces you to get smaller when you're losing and bigger when you're winning, which is the opposite of what feels right but it's how you stay in the game.
The best stretches I've had were the ones where I traded the least and sat the longest. Negative feedback keeps me from trading when I shouldn't be, it gets me to sit and trade small or not at all. And when the feedback turns positive it helps me lean into it and let winning trades work and play out instead of cutting them short. The market rewards timing over effort and this is how you get the timing right.
It also inverts your emotions which I think matters more than anything else about it. After losses the impulse is to size up to make it back. After wins the impulse is to get cautious and protect what you've made. Both are backwards. The loop forces you to get smaller when you're losing and bigger when you're winning, which is the opposite of what feels right but it's how you stay in the game.
The best stretches I've had were the ones where I traded the least and sat the longest. Negative feedback keeps me from trading when I shouldn't be, it gets me to sit and trade small or not at all. And when the feedback turns positive it helps me lean into it and let winning trades work and play out instead of cutting them short. The market rewards timing over effort and this is how you get the timing right.
Your recent trades tell you when to be in the market and when to step aside. Listen to them and the timing takes care of itself.
