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