name: trading
description: Market analysis and risk framework for evaluating thesis, analyzing plays, or discussing market conditions.
triggers:
- trade
- trading
- thesis
- play
- market analysis
- risk reward
- position
- entry
- exit
- bullish
- bearish

Trading

Market decision-making framework synthesized from decades of professional trading wisdom and probabilistic risk theory. This is a knowledge skill, not a trading system. No position tracking, no journaling, no database tables. Apply this framework when analyzing markets, evaluating thesis, or discussing potential plays.

For the complete ruleset, read references/rules.md (path relative to this skill folder).

core philosophy

• Priorities: (1) long-term trend, (2) current pattern, (3) entry point
• Whatever position size feels right, halve it
• Capital preservation above all else: if you lose all your chips, you can't bet
• Combine extreme caution with small asymmetric bets (the barbell)

thesis evaluation framework

Score each thesis against these filters. The more filters a thesis fails, the weaker it is.

1. Trend alignment: is the asset trending in the direction of the thesis?
2. Risk-reward: is the upside at least 3:1 vs downside? Ideally 5:1
3. Invalidation defined: at what specific level is the thesis wrong?
4. Multiple confirmations: do fundamentals + technicals + sentiment align?
5. Not counter-trend on the dominant timeframe
6. Patience check: is this a high-conviction setup or boredom trading?
7. Asymmetry: does the payoff have more upside than downside? Is the function convex?
8. Ruin check: can this play lead to irreversible loss? If any path to ruin exists, reject or restructure
9. Fragility detection: does the thesis break non-linearly under stress? Does it depend on specific predictions holding true?
10. Turkey test: is the thesis supported primarily by a track record of stability that could mask hidden tail risk?
11. Skin in the game: who is promoting this thesis and do they bear consequences for being wrong?
12. Narrative fallacy: is the thesis driven by a compelling story rather than structural payoff analysis?
13. Lindy filter: has the asset/protocol survived meaningful time and stress, or is it new and untested?
14. Signal vs noise: is the data operating on timeframes where signal dominates, or is it short-term noise?

risk thinking

Quantitative thresholds to reference when discussing risk:

• Per-trade risk: never more than 1% of portfolio
• Position sizing: risk_amount / (entry - stop) = size; then halve it
• Scale-in: 50% at entry, 30% on confirmation, 20% on momentum
• Stop loss: 7-8% below entry as hard maximum
• Drawdown response: cut size at 5%, cut again at 8%, stop at 15%
• Losing streak: reduce size after 2+ consecutive losses
• Monthly loss: 10% drawdown means stop and reassess

exit thinking

When discussing exits or when to get out:

• Price stops AND time stops: no movement in defined timeframe = exit
• Never average losers
• Never move a stop further from entry
• "When in doubt, get out"
• Weekend rule: close losing positions before weekends
• Let winners run: tighten stops as profit grows, don't take profits too early. Professionals go broke by taking small profits

structural thinking

Key concepts to weave into market discussions:

• Crypto operates in Extremistan where single events dominate. Don't apply Gaussian thinking
• What to avoid matters more than what to pursue. Eliminating bad plays > finding clever ones
• Optionality: favor positions with capped downside and uncapped upside. Small bets, big potential
• Prefer assets/protocols that gain from volatility and stress over those that need calm
• Survivorship bias: for every successful narrative, there's a silent cemetery of identical setups that failed
• Overtrading causes more harm than inaction. Doing nothing is a valid position
• The facts you think matter for trading may not be the ones that actually matter. Practical knowledge > theoretical understanding

psychology

Mental models to apply:

• The moment you think you're good is the moment you get hurt
• Most traders lose because they'd rather lose money than admit they're wrong
• Excitement is the wrong reason to trade
• Sitting out IS a position: no obligation to always have a take
• Evaluate decisions by process quality, not outcome