psychological cycle of winning and losing in the stock market

1. Pre-winning: waiting for the proper opportunity. I don't see anything, but am staying alert.
   
   
2. In a winning trade: laser focused, looking for a good entry, good exit, confirmation, willing and ready to cut losses early if the trade seems not to be working or the market psychology has changed.
   
   
3. Post winning trade: relief, celebration.
   
   
4. Post winning trade, overconfidence, overly cavalier attitude: "Now, I'm ahead of the game, playing with house money." I can take more risky, less researched and vetted positions.
   
   Also, jeez, I coulda made more on my win.
   
   Can't resist the urge to get back in, even though there isn't an edge or a good trade. 
   
   
5. Beginning of a losing trade: Doesn't properly assess risk / reward. Takes a position based on previous / wrong edge.
   
   
6. Losing position moves against me: I'll add to my position, to average down my position. After all, I'm playing with house money. Also, I hate to lose and don't want to take a loss after my good win.
   
   
7. Position continues to moves against me: I'll keep adding to my position, because I believe in my reasoning despite how the market is reacting. Starting to get stressed about it.
   
   
8. Position moves in my favor, bringing me back to even or a little bit of profit. Oh, but I want to make a big profit, so I'll hold on, because I believe it'll really move for me soon. 
   
   
9. Position oscillates from break even to an increasing loss: each time, it goes to break even, I feel a sense of relief and my belief is reinforced that profits are on their way. So, I am lulled into a brief sense of complacency.
   
   (I need to snap out of the post win bliss / stubbornness that I'm right / relief from the stress of being in a losing position and realize I'm in a bad risk / reward situation and am just lucky to have the opportunity to cut my losses or break even).
   
   
10. Loss continues... now really stressed and hoping it just goes back to break-even. I still believe in my rationale, but the market does not.
    
    
11. options: 

• hold on and take the unrealized losses, because perhaps I am right, it'll just take time and a lot of pain.
• close position at a large loss... draw downs happen
  
  

/// lessons learned

• I am psychologically more alert, risk averse and appropriately opportunistic before a win, especially a big one. 
  
  
• After a win, there comes overconfidence, intellectual laziness sets in.
  
  
• It's hard to take a loss.
  
  
• Sometimes, there are opportunities to close a losing position.

/// strategy going forward

• reset after a win / loss
  
  
• come to terms with being in a bad risk / reward situation. psychologically, deal with the fact that you might be right or you might be wrong. but, it's a bad trade and you may miss out on profits or more likely, you will be saving your from a large loss. 
  
  you can always get back in at a better price, if you're wrong, as opposed to accumulating losses.