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skills/trading-plan-generator/references/trading_psychology.md

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+# Trading Psychology
+
+Master your mind, master the markets.
+
+---
+
+## Why Psychology Matters
+
+**Technical analysis:** 20% of success  
+**Risk management:** 30% of success  
+**Psychology:** 50% of success
+
+**The hard truth:**
+- You are your own worst enemy
+- Emotions destroy accounts
+- Discipline beats intelligence
+- The market exposes psychological weaknesses
+
+---
+
+## The Emotional Cycle of Trading
+
+### Stage 1: Optimism
+- First wins
+- "This is easy!"
+- Overconfidence building
+- Taking bigger positions
+
+### Stage 2: Excitement
+- String of wins
+- Feeling invincible
+- Breaking rules
+- Maximum risk
+
+### Stage 3: Thrill
+- Biggest position yet
+- Ignoring warnings
+- "I can't lose"
+- Peak overconfidence
+
+### Stage 4: Euphoria
+- Top of cycle
+- Taking ANY trade
+- No risk management
+- Disaster imminent
+
+### Stage 5: Anxiety
+- First big loss
+- "Just bad luck"
+- Revenge trading starts
+- Doubling down
+
+### Stage 6: Denial
+- "Market is wrong"
+- Moving stops
+- Averaging down
+- Refusing to accept loss
+
+### Stage 7: Fear
+- Watching losses grow
+- Paralyzed
+- Can't exit
+- Hope replacing strategy
+
+### Stage 8: Desperation
+- All-in trades
+- Gambling, not trading
+- Breaking all rules
+- Account in danger
+
+### Stage 9: Panic
+- Forced exits
+- Margin calls
+- Capitulation
+- Major loss realized
+
+### Stage 10: Capitulation
+- Give up
+- "Trading doesn't work"
+- Blame external factors
+- Quit or start over
+
+### Stage 11: Despondency
+- Depression
+- Lost confidence
+- Consider quitting
+- Seeking answers
+
+### Stage 12: Depression
+- Lowest point
+- Questioning everything
+- But...learning begins
+
+### Stage 13: Hope
+- Education phase
+- Developing plan
+- Paper trading
+- Slow rebuild
+
+### Stage 14: Relief
+- Small wins return
+- Following plan
+- Confidence building
+- Sustainable approach
+
+**Then cycle repeats at smaller scale**
+
+**Goal:** Flatten the cycle through discipline
+
+---
+
+## Common Psychological Traps
+
+### 1. Revenge Trading
+
+**What it is:**
+- Trading to "get back" losses
+- Emotional, not strategic
+- Larger positions
+- Breaks all rules
+
+**Why it happens:**
+- Ego hurt
+- Feel need to "win"
+- Loss aversion
+- Impatience
+
+**How to avoid:**
+- Hard daily loss limits
+- Mandatory cool-down periods
+- Accept losses as business cost
+- Focus on process, not money
+
+---
+
+### 2. FOMO (Fear of Missing Out)
+
+**What it is:**
+- Chasing moves without setup
+- Entering late
+- Ignoring risk
+- "Everyone else is making money"
+
+**Why it happens:**
+- Social comparison
+- Greed
+- Impatience
+- Scarcity mindset
+
+**How to avoid:**
+- Wait for YOUR setup
+- Ignore what others are doing
+- Abundance mindset (opportunities come again)
+- Follow plan strictly
+
+---
+
+### 3. Overconfidence
+
+**What it is:**
+- Taking outsized risk after wins
+- Ignoring risk management
+- "I can't lose"
+- Breaking rules
+
+**Why it happens:**
+- Recent wins
+- Confirmation bias
+- Ego
+- Misunderstanding edge
+
+**How to avoid:**
+- Fixed position sizing always
+- Review losers, not just winners
+- Remember: market is humbling
+- Track compliance, not just P&L
+
+---
+
+### 4. Analysis Paralysis
+
+**What it is:**
+- Over-analyzing
+- Can't pull trigger
+- Waiting for "perfect" setup
+- Missing trades
+
+**Why it happens:**
+- Fear of being wrong
+- Perfectionism
+- Too many indicators
+- No clear plan
+
+**How to avoid:**
+- Simple setup criteria
+- Binary decision framework
+- Accept imperfect trades
+- Losses are part of game
+
+---
+
+### 5. Loss Aversion
+
+**What it is:**
+- Refusing to take small loss
+- Moving stops
+- Hoping for recovery
+- Small loss becomes big
+
+**Why it happens:**
+- Pain of being wrong
+- Sunk cost fallacy
+- Ego protection
+- Loss hurts more than gain feels good
+
+**How to avoid:**
+- Stops are non-negotiable
+- View losses as business expense
+- Protect capital first
+- Smaller losses = stay in game
+
+---
+
+### 6. Confirmation Bias
+
+**What it is:**
+- Seeking info that confirms view
+- Ignoring contrary evidence
+- Refusing to exit losing trade
+- Doubling down on mistakes
+
+**Why it happens:**
+- Need to be right
+- Selective perception
+- Ego protection
+- Prior commitment
+
+**How to avoid:**
+- Actively seek contrary evidence
+- Play devil's advocate
+- Follow price action, not opinion
+- Be wrong quickly
+
+---
+
+## Discipline Framework
+
+### Pre-Trade
+
+**Checklist before EVERY trade:**
+- [ ] Meets setup criteria?
+- [ ] R:R acceptable?
+- [ ] Position size calculated?
+- [ ] Stop-loss identified?
+- [ ] Within daily risk limit?
+- [ ] Calm and focused?
+- [ ] Following plan?
+
+**If ANY "no" → Don't trade**
+
+### During Trade
+
+**Rules while in position:**
+- Check portfolio 2-3x max per day
+- Don't watch every tick
+- Trust your stop
+- Don't interfere unless rule-based
+- Avoid social media/chat
+
+### Post-Trade
+
+**After every trade:**
+- Log trade in journal
+- Note what went right/wrong
+- Capture lessons
+- Review compliance
+- Don't dwell on outcome
+
+---
+
+## Emotional State Management
+
+### Pre-Market Routine
+
+**Daily checklist (15-30 min):**
+- [ ] Adequate sleep (7+ hours)?
+- [ ] Hydrated and fed?
+- [ ] Calm and centered?
+- [ ] No major life stress?
+- [ ] Ready to accept losses?
+- [ ] Following plan today?
+
+**If feeling off → Reduce size or skip day**
+
+### Recognizing Tilt
+
+**Warning signs:**
+- Increasing position size
+- Abandoning stops
+- Taking marginal setups
+- Checking P&L constantly
+- Feeling anxious/desperate
+- Anger at market
+- Rushing into trades
+
+**When tilting:**
+1. STOP immediately
+2. Close positions
+3. Walk away
+4. Physical reset (exercise)
+5. Don't resume until calm
+
+### Cool-Down Periods
+
+**After any loss:**
+- Minimum 15-30 minutes
+- Walk, breathe, reset
+- Review trade objectively
+- Return only when calm
+
+**After 2 consecutive losses:**
+- 1 hour minimum
+- Full review of both trades
+- Confirm plan compliance
+- Reduce size if continuing
+
+**After 3 consecutive losses:**
+- DONE for the day
+- Full day review tomorrow
+- Don't force it
+- Tomorrow is new day
+
+---
+
+## Mindset Shifts
+
+### From Outcome to Process
+
+**Wrong focus:**
+- "I need to make $X today"
+- "I need to win this trade"
+- "I can't afford to lose"
+
+**Right focus:**
+- "Did I follow my plan?"
+- "Was my risk management correct?"
+- "What can I learn?"
+
+### From Prediction to Probabilities
+
+**Wrong thinking:**
+- "This trade WILL work"
+- "I know what market will do"
+- "I can't be wrong"
+
+**Right thinking:**
+- "This has good probability"
+- "I don't know, but R:R is good"
+- "I can be wrong and still profitable"
+
+### From Money to Process
+
+**Wrong focus:**
+- Daily P&L
+- "How much did I make?"
+- Comparing to others
+
+**Right focus:**
+- Plan compliance
+- "Did I execute well?"
+- Personal improvement
+
+---
+
+## Handling Losses
+
+### Accept Losses as Business Cost
+
+**Truth:**
+- Losses are inevitable
+- Even 70% win rate = 30% losses
+- Losses are data, not failure
+- Cost of doing business
+
+**Mindset:**
+- "This is expected"
+- "I planned for this"
+- "On to next trade"
+- No emotion
+
+### Learn from Every Loss
+
+**After each loss ask:**
+- Did I follow my plan?
+- Was setup valid?
+- Was risk management correct?
+- What can I improve?
+
+**Categories of losses:**
+1. **Good loss:** Followed plan, just didn't work
+2. **Bad loss:** Broke rules
+3. **Learning loss:** New insight gained
+
+**Good losses are OK. Learn from bad ones.**
+
+---
+
+## Handling Wins
+
+### Don't Get Overconfident
+
+**After big win:**
+- Resist urge to increase size
+- Follow plan as always
+- One win doesn't mean edge
+- Stay humble
+
+### Avoid Euphoria
+
+**Warning signs:**
+- Feeling invincible
+- "I figured it out"
+- Itching to trade more
+- Looking for any setup
+
+**Remedy:**
+- Stick to plan
+- Take break if needed
+- Remember: regression to mean
+- Past performance ≠ future
+
+---
+
+## Daily Practices
+
+### Morning
+
+**Before market open:**
+- Review plan
+- Check emotional state
+- Set intentions
+- Prepare workspace
+- Identify setups
+- Set risk limits
+
+### During Session
+
+**While trading:**
+- Follow checklist
+- One trade at a time
+- Take breaks
+- Stay hydrated
+- Avoid news during trades
+- Trust process
+
+### Evening
+
+**After market close:**
+- Journal all trades
+- Calculate P&L
+- Review compliance
+- Note lessons
+- Prepare for tomorrow
+- Disconnect from markets
+
+---
+
+## Accountability Systems
+
+### Trade Journal
+
+**Required entries:**
+- Setup and reasoning
+- Emotional state
+- Rule compliance
+- Mistakes made
+- Lessons learned
+
+### Performance Review
+
+**Weekly:**
+- Win rate
+- Avg win/loss
+- Compliance %
+- Emotional patterns
+- Improvement areas
+
+**Monthly:**
+- Full performance analysis
+- Goal progress
+- Strategy refinement
+- Psychological assessment
+
+### External Accountability
+
+**Consider:**
+- Trading buddy
+- Mentor
+- Trading journal app
+- Community (carefully)
+
+---
+
+## Meditation & Mindfulness
+
+### Why It Helps
+
+**Benefits for traders:**
+- Emotional regulation
+- Impulse control
+- Focus and clarity
+- Stress reduction
+- Better decisions
+
+### Simple Practice
+
+**Daily meditation (10 min):**
+1. Sit comfortably
+2. Focus on breath
+3. Notice thoughts
+4. Return to breath
+5. No judgment
+
+**Before trading:**
+- 5 minutes breathing
+- Center yourself
+- Set intention
+- Begin calm
+
+---
+
+## Physical Health
+
+### Sleep
+
+**Critical for trading:**
+- 7-9 hours minimum
+- Consistent schedule
+- No trading if tired
+- Sleep > trading
+
+### Exercise
+
+**Benefits:**
+- Stress management
+- Mental clarity
+- Emotional regulation
+- Energy levels
+
+**Recommendation:**
+- 30 min daily minimum
+- Before or after trading
+- Not during market hours
+
+### Nutrition
+
+**Avoid:**
+- Excessive caffeine
+- Sugar spikes
+- Trading hungry
+
+**Prefer:**
+- Balanced meals
+- Steady energy
+- Hydration
+
+---
+
+## Dealing with Drawdowns
+
+### Normal Part of Trading
+
+**Reality:**
+- All traders have drawdowns
+- Expect them
+- Plan for them
+- Survive them
+
+### During Drawdown
+
+**Actions:**
+1. Review all trades
+2. Verify plan compliance
+3. Reduce position size
+4. Take break if needed
+5. Focus on process
+6. Trust recovery
+
+**Don't:**
+- Increase size to "get back"
+- Abandon plan
+- Change strategy mid-stream
+- Panic
+
+---
+
+## Quotes for Mindset
+
+**"The goal of a successful trader is to make the best trades. Money is secondary."** - Alexander Elder
+
+**"In trading, the impossible happens about twice a year."** - Henri M. Simoes
+
+**"The market is a device for transferring money from the impatient to the patient."** - Warren Buffett
+
+**"The most important quality for an investor is temperament, not intellect."** - Warren Buffett
+
+**"Rule No. 1: Never lose money. Rule No. 2: Don't forget rule No. 1."** - Warren Buffett
+
+**"It's not whether you're right or wrong, but how much money you make when you're right and how much you lose when you're wrong."** - George Soros
+
+---
+
+## Psychological Checklist
+
+**Before trading session:**
+- [ ] Adequate sleep
+- [ ] Calm and focused
+- [ ] No major stress
+- [ ] Following plan
+- [ ] Prepared to lose
+- [ ] No revenge mindset
+
+**During trading:**
+- [ ] Checking P&L minimally
+- [ ] Following checklist
+- [ ] Taking breaks
+- [ ] Trusting stops
+- [ ] No tilt signs
+
+**After trading:**
+- [ ] Journaled all trades
+- [ ] Reviewed objectively
+- [ ] Noted lessons
+- [ ] Disconnected
+- [ ] Ready for tomorrow
+
+---
+
+## Summary
+
+**Trading psychology is:**
+- 50% of success
+- Controllable
+- Improvable
+- Critical
+
+**Master these:**
+- Emotional control
+- Discipline
+- Process focus
+- Loss acceptance
+- Patience
+
+**Remember:**
+- Markets are uncertain
+- Outcomes are random
+- Process is controllable
+- Discipline wins long-term
+
+**Your edge isn't prediction. It's consistency.**