Trading in the Zone Review – Who is Mark Douglas?
Mark Douglas is one of the most well-respected trading educators and authors of all time. Throughout his life, he provided consulting services through seminars, workshops, and personal training for some of the top trading institutions and investment banks in the financial space: Chicago Board of Trade, New York Board of Trade, Citibank, Deutsche Bank, and many more. He is also the author of two great books covering the topics of trading psychology called The Disciplined Trader and Trading in the Zone.
While these books don’t cover much in regard to specific trading strategies, Mark does however share valuable insights into the mental aspects of trading that are all-encompassing. All traders, no matter what they trade or where they trade it, have much to learn from Mark’s works. Oftentimes, people attempt to become better traders by learning more about the markets, constantly switching strategies, and spending as much time in front of their computers as possible. But the reality is that they should be focusing more attention within themselves on their own mindset. Because without the proper mental skills, even the best high-probability strategies are susceptible to failure due to a lack of discipline and poor execution.
The 4 Primary Trading Fears That Cause Emotional & Financial Wreckage:
According to Mark Douglas, there are 4 primary fears that drive the emotions and behaviors of all traders. Let’s discuss them below.
1.) The Fear of Being Wrong
Most prospective traders think that there’s some magical system out there that will allow them to profit on every single trade, but that simply doesn’t exist. Losing trades can’t be completely avoided, which is why it’s critical to predefine risk on each trade and cut losses at a reasonable level, if necessary. Many traders let small losses (paper cuts) turn into huge losses (gashes) over-and-over again because of their refusal to accept the initial small losses and be considered “wrong”. As a result, their accounts will eventually dwindle down to $0 (or close to it). The best traders realize that it’s not about being “right” on every single trade. It’s about trading your edge right with patience, discipline, and a probabilistic mindset. And when you trade right, there will undoubtedly be some losing trades along the way, but the profits take care of themselves over time. The small losses are merely the “cost of doing business”.
2.) The Fear of Losing Money
This is an obvious one and probably the most prevalent. Nobody wants to lose money, yet so many traders do. Trading with too much fear of losing money causes you to take profits too early and sometimes even cut losses too quickly before ever giving your trades a real chance. There has to be a healthy balance between giving your trades some breathing room and cutting losses at a reasonable level. And if you’re up on trades, you have to have enough patience to let them run to a certain degree. Immediately taking profits as soon as you see green won’t get you very far. This is why planning trades ahead of time and being prepared no matter which direction it goes is so helpful. You have your ideal entries and exits laid out in advance – all you have to do is stick to those plans you prepared. Sometimes scaling in and out of trades can help ease the fear of entering and exiting at the wrong times.
3.) The Fear of Missing Out
FOMO is another thing that can take you on emotional roller coaster rides. Most traders want to be involved in every single opportunity that presents itself in the markets, but it’s simply impossible to do so. Every little tick can make you feel like you’re missing out on potential profits. But those urges to jump into all sorts of trades leads to strategy-hopping, over-trading, and overall poor results. It’s like the old saying goes “The man who chases two rabbits catches none”. As a beginner, it’s best to focus on just one particular strategy and give it your complete focus for a material length of time. If you’re constantly worrying about decisions to enter multiple trades using multiple strategies, you will always be surrendering precious mental capacity and time weighing, doubting, and judging. To be a great trader, you have to cultivate the proper mental clarity to stay focused on your specific setups while blocking everything else out.
4.) The Fear of Leaving Money on the Table
This is where the psychological aspect of trading gets really interesting. Of course it can be upsetting to take a loss on a trade. But sometimes the feeling can be even worse after you take profit on a trade and that particular stock, option, or whatever it may be just keeps on running in the direction of your trade. You feel like you could’ve captured much more of the move, sometimes even double or triple what you actually did. Instead of being happy with the profits you secured, you’re discouraged by the thought that it could’ve been much more. But traders have to realize that this is something that will happen frequently. You have to accept the fact that you’ll rarely be able to capture the bottom and top of every move. In fact, pinpointing perfect entries and exits will almost never happen. If the trade goes according to plan, it’s all about taking “the meat of the move”.
Consistent Profitability For Only 10% of Traders – Will You Be One of Them?
Very few people make consistent money as traders. That’s the cold, hard truth. The exact number varies depending on the source, but most estimates suggest that roughly 90% of traders lose money. It has to make you wonder – why exactly is the failure rate so high?
The simple answer – mindset. Trading success starts with self-awareness and self-control. But the problem is that most individuals just don’t have these two mental attributes. The typical trader automatically acts on impulses and emotions, and seeks thrill and excitement even if it correlates with poor results. As a result, the typical trader’s compulsive and destructive patterns of the mind eventually dismantle their portfolio. The good news, however, is that it is possible to change.
Take Complete Accountability For Your Own Trading Results:
It’s so easy to blame outside sources or other people for your current position in life or your personal portfolio results, but the only thing holding you back is you. As soon as traders accept this reality, the sooner they clean up their approach, implement discipline, and change their situations for the better.
A large amount of newcomers to the markets are susceptible to unstructured, random trading in order to avoid responsibility. They may not even realize what they’re doing, but they don’t want to take accountability for their losing trades. And if they win on trades, they feel great because they didn’t put much time and effort into it. All they did was click a few buttons and blindly enter some trade. In essence, they got something for nothing. But this sort of detached approach isn’t a sustainable strategy. The road to consistent profitability starts with complete accountability and ownership of mindset, trade execution, and results.
Common Misconceptions About the Characteristics of Good Traders:
Most people think successful traders are financial experts or people who implement complex systems, but that’s not necessarily the case. Being a good financial analyst is not synonymous with being a good trader. In fact, most of them are terrible traders. That’s because the most critical aspect of trading isn’t about calculating financial ratios or generating price targets. It’s about being proficient at placing and managing trades according to your system with discipline.
Many people think that highly educated professionals like doctors and lawyers automatically make great traders as well, but that’s not necessarily the case either. In fact, they oftentimes have a hard time achieving trading success until they come to terms with how the entire thing operates. They tend to focus too much on trying to outsmart the markets while completely overlooking the psychological aspects. As a result, their trading approach typically has an excess of confidence and arrogance, but lacks the proper discipline and risk management. Overall, operating effectively in an environment that has qualities and characteristics we’re not used to requires major adjustments. The sooner we realize this, the better. Oftentimes, it takes years of pain and suffering at the hands of the markets until we realize and accept this fact. With the correct mindset shift, however, trading can go from a frustrating and afflictive experience to an enjoyable and effortless one. That’s the ultimate goal.
The Wrap Up – Stop Getting in the Way of Your Own Trading Success:
To summarize some of the best points explained by Mark Douglas throughout Trading in the Zone, the determining factor for your trading success is mindset. Without the proper mindset and discipline as your foundation, even the best strategies can be compromised. To achieve consistency, you need rules, and it’s crucial to stick to those rules. Most traders are constantly looking outward for consistency when they should be looking inward. The consistency they seek is within their own minds.
What success in the markets ultimately comes down to is a complete mindset shift from thinking in certainties to thinking in probabilities. You have to accept the fact that you have no control over the outcome of any single trade. When you accept the random nature of any individual outcome, you can release the expectation of winning. When you release expectations, you’re no longer emotionally attached. You can then focus on the flawless execution of your strategy. With a high-probably strategy/edge, you can rely on it to work over a large series of trades. So it’s not about any one trade (short-term thinking), it’s about a series of trades over time (long-term thinking). Overall, the proper mindset allows us to control our behavior in the face of constant temptation from the markets.
Written by Matt Thomas (@MattThomasTP)
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