Trading In The Zone by Mark Douglas

Updated: May 25, 2021

Trading In The Zone - Stock Trading Psychology & Trader Discipline



Trading In The Zone by Mark Douglas.

We have covered many aspects of trading, from trading setups through to risk reward and risk management, but we have yet to cover mindset, psychology and thinking in terms of probabilities. Arguably the most important components of becoming a successful trader.

Many different character traits appear through the career of a trader, from fear, anger, confusion, despair through to over confidence.

Mark says ‘consistent winners think without emotion’

Technical and fundamental analysis will only take us so far, being able to adopt the right mental state and therefore ‘trade in the zone’ is the differentiating factor.

Mark shows us how.

Today we present ‘Trading in the zone’.

Every gambler approaches the roulette table with a positive mentality but is aware that when a bet is placed there is a chance they could lose, but deep down the gambler does not really expect to lose, otherwise why would they place a bet in the first place?

When this engrained false expectation materialises into a string of unexpected losses, true emotions begin to appear. Positivity turns into heightened focus and then disbelief, anger and finally despair.

On the other hand, the casino owner embraces the fact that the gamblers could have a winning streak, this could result in the casino having a losing day or even a losing week, but the casino has a confirmed edge and over a large volume of bets placed they know they will win, losses are just part of the business.

The same principle exists in trading. Every trader is aware that when a trade is entered there is an element of risk, either the full position or the stop loss portion. But does every trader really accept the risk or even think they will lose money on this new trade position?

The expectation of most traders is for price to continue its trajectory.

However, in reality this often happens.

When this happens several times in a short period, the trader becomes disillusioned, and realisation confirms a psychological gap between assuming they accepted the risk, to fully embracing the risk when a series of failed trades occur.

Mark Douglas suggests that the best traders in the world know that the next trade is a random event, therefore a sequence of random events could lead to a sequence of losing trades. But like the casino owner they understand this is just part of the business.

The hard, cold reality of trading is that every trade has an uncertain outcome. Unless you learn to completely accept the possibility of an uncertain outcome, it will be very hard to succeed as a trader.

Mark provides ‘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”.

And finally.

“Every moment in the market is unique”.