Saturday, August 11, 2012

Review of 'Trading In The Zone' by Mark Douglas

Review of Trading In The Zone by Mark Douglas

Don't get confused between making a winning trade and being a consistently successful  trader. It takes no skill to make a winning trade. It takes no skill to make 2 successful trades. Every trader knows that being a consistently successful trader, being profitable of the period of a year is a completely different animal.

Trading is difficult to master. A consistently profitable trader is someone who is putting himself in a game that pits his or her skills with the brightest and talented people out there. There is a reason why they say that only 5% of traders are consistently profitable. Yes, because its is difficult. Depending on where you start out, you will be learning how to swim with the sharks and not be eaten. Every time you put on a trade, to be successful someone on the other side has to be a loser. A winning trade is simply the movement of money from someone else's account into yours. If you asked the most successful traders in History what is the difference between success and failure, 9 times out of 10 they will answer your mindset and your psychology. The truly successful traders that have mastered trading, have also mastered their minds, their mindset, and their psychology.

Mark Douglas has written the Bible of trading psychology and is a must read if you are considering to enter the world of trading the markets.

Trading In The Zone will give you all the information you need to master the art of trading psychology. He has also created some fundamental values that summarize the understandings needed in order to become a successful trader. Learn them, read the daily. But firstly read Mark's book, as it will give you all the deeper understandings that underpin these core beliefs.

In order to get a deeper understanding of the markets and the world that you are entering you will need to master these 5 truths..

The Five Fundamental Truths of Trading

1.   Anything can happen
      Although the market can generate times when patterns emerge, essentially every moment in time is actually a brand new moment, where totally different factors, attitudes, circumstances and energies are being played out. Every moment in the market is unique, never has been before, and will never happen again. Therefore anything can happen. So expect that anything can happen, and prepare for this certainty.
2.   You don't need to know what is happening next in order to make money
Your job is not to predict the market. That sounds crazy! but its true. You are not trying to predict what will happen next, you are only taking advantage of an edge. You know that over a series of trades you have a certain win percentage. How that win percentage materializes isn't important.
3.   There is a random distribution between wins and losses for any given set of variables that define an edge
      You have no idea whether this next trade will be a winner or loser. Don't believe anyone who says they can predict the future, many brilliant men have tried and failed. If you are trading with a defined set of rules, then you can predict a percentage over a number of trades, but not the next trade. You can only be certain that based on past history a certain percentage of trades were wins. Like flicking a coin in the air, who can tell if it will be heads or tails, only that over time with enough flicks it will be 50%.
4.   An edge is nothing more than an indication of a higher probability of one thing happening over another
      If you know based on a set or rules and criterion that you follow religiously, that your strategy has a higher win percentage that losing percentage. Or that you have more losses than wins, but your wins are twice as big as your losses. Then you know you have an edge. The probability is set in your favor.
5.   Every moment in the market is unique
      Every moment in time is completely unique. From one moment to the next the world and the universe is completely different. Our minds have the ability to create the illusion of consistency so that we can operate with a degree of certainty. Otherwise we would go nuts! This understanding is the core principle of a profitable trader. Because it leads to the attitude that if I follow my rules, I don't need to know whether the next trade will be a winner, and I don't need the next trade to be a winner. I need to have absolute belief in my strategy, my edge and my ability to consistently produce results over time through the application of my trading rules.

Mark goes on to describe seven principles that form the core of a successful traders mindset. Read these 7 affirmations every day for 1 month, or until you have absorbed them fully into your trading belief system and mindset. Read them as part of your trading day setup, in preparation before you start trading.


1.  I AM A CONSISTENT WINNER BECAUSE...   I objectively identify my edges
2.   I AM A CONSISTENT WINNER BECAUSE...I predefined the risk of every trade
3.  I AM A CONSISTENT WINNER BECAUSE...I completely accept risk or I am willing to let go of the trade
4.   I AM A CONSISTENT WINNER BECAUSE...I act on my edges without reservation or hesitation
5.   I AM A CONSISTENT WINNER BECAUSE...I pay myself as the market makes money available to me
6.  I AM A CONSISTENT WINNER BECAUSE...I continually monitor my susceptibility for making errors
7.   I AM A CONSISTENT WINNER BECAUSE...I understand the absolute necessity of these principles of consistent success and therefore I never violate them.

Find out more about Mark Douglas and trading psychology at his website

Or purchase a copy of his book - Trading in the Zone

What makes a consistently profitable trader?

Every trader who is starting out, is starting with the belief that they can eventually make a living with trading. Initially it seems so easy. They soon come to realize that trading can be one of the most frustrating experiences . On the face of it, all you do is press a button on a mouse. It worked in the past, in fact I made money this way yesterday and I'm doing the exactly the same thing today, so what went wrong?

What makes consistency so challenging?

Mark Douglas says.. "It requires learning the type of skills that people are simply not used to learning, mental skills. Most people assume that because their technical method gives them a signal to get into a trade, that if their method produces a high percentage of winners, it will equal a consistent income. Not taking into consideration that the execution of that system requires mental skills."

The metaphor of a basketball player..

Imagine a professional basketball player who practices 5 hours a day throwing hoops, day after day he consistently throws the ball in the net. In fact he can string a number of winning throws through the net without missing a single one.  

Now the question is...

Could that basketball player make a winning throw if she was the finals of a major basketball championship, her team is down 1 point and there is only a few seconds left on the clock, and she was just fouled? Under these circumstances, without the mental skills, making the winning throw is highly unlikely.

Can you stay focused on the process of trading, under the pressure of the trading conditions. Without being distracted by your emotions or the pressure of losing money? or what the consequences are if this trade went wrong.

You may have a good technical method, that could potentially make you large profits. Without the mental skills of a Basketball player that can shoot the winning hoop in the pressure of a win or lose situation has, it is unlikely that you will be able to follow your trading plan correctly enough to produce the consistent results, without making a number of execution errors.

Mark Douglas of says..

 "to stay positively focused on the process of trading, by doing exactly what we need to do, when we need to do it, without hesitation, reservation or fear.

"No matter how good a technical method is at generating winning trades, turning those winners into a consistent income requires the ability to do or not do some things that the method itself can't help us with. 

For example:

  • Our method cant force us to predefined the risk of getting into a trade.
  • Or if we do predefined the risk, our method cant force us to take the loss that ends up turning into a bigger loss.
  • Our method cant prevent us from moving our stop closer to our entry point, where we get stopped out and the market trades back in our favor
  • Our method cant prevent us from hesitating and getting in too late, or jumping the gun and getting in too soon, where the signal to actually get in never really develops.
  • our method cant stop us from getting out of a winning trade too soon and leaving money on the table.
  • our method cant prevent us from letting a winning trade turn into a losing trade without getting any profits
These mental errors are a result of thinking, believing or assuming that our technical method is telling us, what's going to happen next on a trade by trade basis. Not understanding that technical methods aren't designed to do that. Technical methods and patterns are designed to put the odds of success in our favor over a series of trades. It may not seem like it on the surface but their are some profound psychological implications here. What this means is that the outcome of the signals generated by any technical method on a trade by trade basis are unique and random. in other words their is no way to know in advance what the outcome to any particular signal will be or what the sequence of wins or losses will be over a series of trades."

The solution..

A consistently profitable trader accepts the randomness of the outcomes. Every moment in the market is unique!

Monday, August 06, 2012

Another Fantastic Day for Trend Following Day Trading

Trades from 6th August 2012

A fantastic day to be trading this Trend Following Opening Range Breakout Strategy.

Total Profit for the day on these Stocks $14.25 per share traded or $1,425 when trading 1000 shares.

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Thursday, June 28, 2012

A Fantastic Day to Trade - Take home over $1179

A Fantastic Day to Trade

Every now and again you get a F.A.N.T.A.S.T.I.C.!! Day like yesterday.

I'm now certain that I fall into the category of 'Trend Following Day Trader'. I follow the trend, sometimes I have draw down days, sometimes I have even draw down weeks. But at the end of the day, I am always limiting my losses, I trade in a systematic way, I make money whether the market trends up or down, I let my winners run.

Check this out for a winning day:

BRY - PROFIT $0.50

CAM - PROFIT $0.50


DE - PROFIT $1.00

DG - PROFIT $0.80

EQT - PROFIT $0.60


FMX - PROFIT $0.40

FUN - PROFIT $0.30


HP - PROFIT $0.40

HPY - PROFIT $0.90

LKQ - PROFIT $0.60



MKC - PROFIT $0.60


NFG - PROFIT $1.30


NWE - PROFIT $0.10


RBN - PROFIT $0.40

ROC - LOSS -$0.20



X - PROFIT $0.20

Total Profit for the day - $23.58

Even if you only took half these trades - $11.79

Trading 1000 shares = Profit $1179

Not bad for a days work.

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