The Disciplined Trader - Mark Douglas

Trading Psychology & The Developing of Winning Attitudes.



When it comes to trading psychology and the developing of winning attitudes, there is no better teacher than Mark Douglas, author of the popular book Trading In The Zone.

In this review of The Disciplined Trader, we again look at the key concepts discussed by Mark and learn how we can apply them to our own trading.

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Mark makes a great quote which sits at the core of his teachings when he says:

“The problem is that preventing pain by avoiding losses can’t be done. The market generates behaviour patterns and the patterns repeat themselves, but not every time. So again, there is no possible way to avoid losing or being wrong”.

Once we fully understand this statement, the journey to becoming a disciplined trader will become much easier.

Emotional control is arguably one of the main differentiators between being an unsuccessful trader and one that takes a more disciplined route.

So how do we become a less emotional, more disciplined trader?

In the book, Mark links the many trading challenges to that of a trader’s perception of the market.

The first lesson is to know that the market is always right, only you can be wrong, never the market.

Second, the market does not care about you, it does not care how much money you have won or lost, it has its own rhythm. It is only through experience, trial and error, that you begin to accept that the market has no emotion, only you do.

Remember, the market is an unstructured, irrational, uncontrollable and demanding environment.

Once we have the right perception of the market we can then look inwardly at our own psychology.

Mark suggests that there are three steps to trading success;

Perceiving opportunity. Executing Trades. And accumulating profits.

However, each are marred by emotional pitfalls, and no trader can succeed unless these emotions are addressed, ensuring they do not interfere with trading judgments.

One of the ways we can address these emotions is to create rules. These rules will help us identify opportunities, execute our entry, or exit trades, and manage position size and risk.

These rules take away subjectivity, and help our emotions from getting drawn into irrational market behaviour.

Having these rules however is not the complete solution, if we hit a series of losses following our rules, we start to doubt them. Such losses can create irrational blind spots in our cognitive reasoning. The more we are hit by losses the less likely we are to follow the rules, this comes despite knowing the market is itself irrational.

This cycle repeats endlessly until we accept that losses will occur, we must manage them accordingly with solid risk management and allow the market to do its thing. It’s important to note however that rules should not be followed blindly, they must be considered from past performance and analysis which supports the viability of the strategy. It goes without saying that following rules to a flawed or unproven strategy could lead to financial ruin.

Another important aspect discussed in the book is expectation and goal achievement.