Unwinding a position that’s stuck in a losing contract requires flexible responses based on the holding direction and the market position. If you’re in a long position that’s been trapped and the price is in the pullback stage after a strong upward surge, you can add to your position at a low level with a small size to lower your average entry. When the rebound reaches the resistance level, close out the portion you added, while keeping the core position and waiting for a breakout.

If you’re already near the liquidation (bust) line, you should cut losses decisively or open a hedge in the opposite direction to offset risk, avoiding liquidation. If you’re in a short position that’s been trapped and the price has already surged significantly into a strong resistance area, you can hold and wait for a pullback. Meanwhile, at key resistance levels, open shorts to thin your cost, but make sure to set a stop-loss to prevent the trend from continuing.

The core principle is to control position size: never let any single trade’s loss exceed 5% of the principal, and absolutely do not stubbornly hold against the trend. Use rebounds or pullbacks to reduce exposure in batches, prioritizing the preservation of capital.

Unwinding essentially means admitting mistakes and correcting them. If the trend fully reverses, you must promptly stop-loss and exit, then wait for the next opportunity to trade in the direction of the trend. Don’t get trapped in deeper passivity due to hesitation.

Assume a crocodile has bitten your foot. If you try to use your hand to pull free your foot, the crocodile will bite both your foot and your hand at the same time. The more you struggle, the more you get bitten.

So, if a crocodile bites your foot, your only chance to escape is to sacrifice one foot.

The crocodile rule is: when you find your trade has deviated from the market’s direction, you must stop-loss immediately—no delay, and no wishful thinking.