It was a Tuesday afternoon and the ASX was half-asleep. The Americans were on a long weekend, the desk was quiet, and I spotted what looked like a textbook breakout on a small-cap mining stock. The bid-ask spread was wider than usual. I noticed that. I entered anyway. That single decision cost me more than a month of gains.
My algo flagged the setup as valid — momentum, price structure, everything aligned. What it didn't flag loudly enough was that daily volume was sitting at roughly 18% of the 30-day average. I'd seen the volume indicator. I'd mentally filed it under "probably fine." That is precisely the kind of rationalisation that destroys accounts slowly, then suddenly.
I sized the position normally. That was the second mistake layered on top of the first. In thin markets, a normal-sized order moves price against you on entry and again on exit. I got filled 1.4% above my intended entry. When I tried to exit two hours later after the trade went sideways, I gave up another 1.8% to the spread. The setup was never the problem. The conditions were.
The root cause wasn't greed or impatience. It was a filter gap — my system screened for pattern and momentum but had no hard disqualifier for volume below a defined threshold. After this trade I added a mandatory rule: if 30-day average daily volume falls below a set minimum, the setup is automatically skipped, regardless of how clean it looks. No exceptions, no overrides. For anyone wanting to understand the mechanics behind why this matters, market liquidity explains how easily assets convert to cash without price impact, while bid-ask spread dynamics show exactly where that cost lands in your P&L. The broader concept of market liquidity in financial markets puts the whole problem in structural context.
The setup didn't fail me. I failed the setup by ignoring the environment it was sitting in.
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