My key takeaways from Trading in the Zone by Mark Douglas
- Taking responsibility is the cornerstone of a winning attitude.
- Traders who have learned to think in probabilities are confident of their overall success, because they commit themselves to taking every trade that conforms to their definition of an edge. They don’t attempt to pick and choose the edges they think, assume, or believe are going to work and act on those; nor do they avoid the edges that for whatever reason they think, assume, or believe aren’t going to work,
- They have found that by taking every edge, they correspondingly increase their sample size of trades, which in turn gives whatever edge they use ample opportunity to play itself out in their favour, just like the casinos.
- When you achieve complete acceptance of the uncertainty of each edge and the uniqueness or each moment, your frustration with trading will end. Furthermore, you will no longer be susceptible to making all the typical trading errors that distract from your potential to be consistent and destroy your self-confidence.
- For the traders who have learned to think in probabilities, there is no dilemma.
- Predicting the risk doesn’t pose a problem for these trades because they don’t trade from a right or wrong perspective. They have learned that trading doesn’t have anything to do with being right or wrong on any individual trade. As a result, they don’t perceive the risk of trading in the same way the typical trader does.
- How could you anticipate a signal that hasn’t yet manifested itself in the market, if you weren`t convinced that you were going to miss out.
- When you stop making trading errors, you`ll begin trusting yourself. As your sense of self-trust increases, so will your sense of self-confidence. The greater your confidence the easier it will be to execute your trades (act on your edges without reservation or hesitation.
- The loss doesn’t create any emotional damage because I don’t interpret the experience negatively. To me, losses are simply the cost of doing business or the amount of money I need to spend to make myself available for the winning trades. If, on the other hand, the trade turns out to be a winner, in most cases I know for sure at what point I am going to take my profits. (if I don’t know for sure, I certainly have a good idea).
- The best traders are in the “now moment” because there`s no stress. There`s no stress because there`s nothing at risk other than the amount of money they are willing to spend on a trade. They are not trying to be right or trying to avoid being wrong, neither are they trying to prove anything. If and when the market tells them that their edges aren’t working on that its time to take profits, their minds do nothing to block this information. They completely accept what the market is offering them, and they wait for the next edge.
- A problematic mind-set pertaining to trading consists of five fundamental truths.
- Anything can happen.
- You don’t need to know what is going to happen next in order to make money.
- There is a random distribution between wins and losses for any given set of variables that define an edge.
- An edge is nothing more than an indication of a higher probability of one thing happening over another.
- Every moment in the market is unique.
- The unknown forces are other traders waiting to enter or exit trades, based on their beliefs about the future, in other words, we really can`t know exactly what to expect from the market until we can read the minds of all other traders who have the potential to act as a force on price movement. Not a very likely possibility.
- When you genuinely accept the risks, you will be at peace with any outcome. When you`re at peace with any outcome, you will experience a carefree, objective state of mind, where you make yourself available to perceive and act upon whatever the market is offering you ( from its perspective) at any given “now moment”.
- Making money consistently in the by-product of acquiring and mastering certain mental skills. The degree to which you understand this is the same degree to which you will stop focussing on the money and focus instead on how you can use your trading as a tool to master these skills.
- When you are in a carefree state of mind, you won`t feel any fear, hesitation, or compulsion to do anything, because you’ve effectively eliminated the potential to define and interpret market information as threatening. To remove the sense of the threat, you have to accept the risk completely. When you have accepted the risk, you will be at peace with any outcome.
- When you believe at a functional level that every edge has a unique outcome (meaning that it’s a dominant belief without any other beliefs arguing for something different), you will experience a state of mind that is free of fear, stress, anxiety when you trade it really can`t work any other way.
- When you truly believe that you don’t need to know, you will be thinking in probabilities (the market perspective) and will have no reason to block, discount, deny, or attack anything the market is offering about its potential to move in any particular direction.
- If producing consistent results is your primary objective as a trader, then creating a belief (a conscious energised concept that resists change and demands expression) that I am a consistently successful trader will act as a primary source of energy that will manage your perception, interpretation, expectation, and actions in a way that satisfy the belief and consequently, the objective.
- There is always an optimum point at which the possibility of a trade not working is so diminished, especially in relationship to the profit potential, that you`re better off taking your loss and getting your mind clear to act on the edge. Let the market structure determine where this optimum point is, rather than using an arbitrary dollar amount that you are willing to risk on a trade.
- The first step in the process of creating consistency is to start noticing what you`re thinking, saying, and doing. Why? Because everything we think, say or do as a trader contributes to and therefore, reinforces some belief in our mental system.
- Your first line of defence against committing a trading error is to catch yourself thinking about it.
- Of course, the last line of defence is to catch yourself in the act, if you don’t commit yourself to becoming an observer to these processes, your realisation will always come after the experience, usually when you are in a state of deep regret and frustration.
- Observing yourself objectively implies doing it.
- If and when all of the sources of conflict have been de-activated, there`s no longer a potential for you to `be` any other way. What was once a struggle will become virtually effortless. At that point, it may seem to other people that you are so disciplined (because you can do something they find difficult, if not impossible) but the reality is that you aren’t being disciplined at all, you are simply functioning from a different set of beliefs that compel you to behave in a way that is consistent with your desires, goals, or objectives.
I AM A CONSISTENT WINNER BECAUSE:
- I objectively identify my edges.
- I predefine the risk of every trade.
- I completely accept risk, or I am willing to let go of the trade.
- I act on my edges without reservation or hesitation.
- I pay myself as the market makes money available to me.
- I continually monitor my susceptibility of these principles of consistent success and, therefore, I never violate them.