Author Topic: Trading Psychology  (Read 5 times)

Inzider

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The best trading psychology book I ever red.

Mark Douglas

TRADING IN THE ZONE
MASTER THE MARKET WITH CONFIDENCE, DISCIPLINE AND A WINNING ATTITUDE

Enjoy!

https://optimusmarkets.com/files/Trading_in_the_Zone_Mark_Douglas.pdf

"PREFACE The goal of any trader is to turn profits on a regular basis, yet so few people ever really make consistent money  as  traders.  What  accounts  for  the  small  percentage  of  traders  who  are  consistently  successful?  To me, the determining factor is psychological—the consistent winners think differently from everyone else.I started trading in 1978. At the time, I was managing a commercial casualty insurance agency in the suburbs of Detroit, Michigan. I had a very successful career and thought I could easily transfer that success into trading. Unfortunately, I found that was not the case.  By 1981, I was thoroughly disgusted with my inability to trade effectively while holding another job, so  I  moved  to  Chicago  and  got  a  job  as  a  broker  with  Merrill  Lynch  at  the  Chicago  Board  of  Trade.  How did I do? Well, within nine months of moving to Chicago, I had lost nearly everything I owned. My  losses  were  the  result  of  both  my  trading  activities and my exorbitant life style, which demanded that I make a lot of money as a trader. From these early experiences as a trader, I learned an enormous amount  about  myself,  and  about  the  role  of  psychology  in  trading.  As  a  result,  in  1982,  I  started  working on my first book, The Disciplined Trader: Developing Winning Attitudes.  When I began this project I had no concept of how difficult it was to write a book or explain something that I understood for myself in a manner and form that would be useful to other people. I thought it was going to take me between six and nine months to get the job done. It took seven and a half years and was finally published by Prentice Hall in 1990. In 1983, I left Merrill Lynch to start a consulting firm, Trading  Behavior  Dynamics,  where  I  presently  develop  and  conduct  seminars  on  trading  psychology  and  act  in  the  capacity  of  what  is  commonly  referred  to  as  a  trading  coach.  I've  done  countless  presentations   for   trading   companies,   clearing   firms,   brokerage   houses,   banks,   and   investment   conferences all over the world.  I've worked at a personal level, one on one, with virtually every type of trader in the business, including some of the biggest floor traders, hedgers, option specialists, and CTAs, as well as neophytes As of this writing, I have spent the last seventeen years dissecting the psychological dynamics behind trading so that I could develop effective methods for teaching the proper principles of success. What I've discovered is that, at the most fundamental level, there is a problem with the way we think. There  is  something  inherent  in  the  way  our  minds  work  that  doesn't  fit  very  well  with  the  characteristics shown by the markets. Those traders who have confidence in their own trades, who trust themselves to do what needs to be done without hesitation, are the ones who become successful. They no longer fear the erratic behavior of the market. They learn to focus on the information that helps them
spot opportunities to make a profit, rather than focusing on the information that reinforces their fears. While  this  may  sound  complicated,  it  all  boils  down  to  learning  to  believe  that:  (1)  you  don't  need  to  know what's going to happen next to make money; (2) anything can happen; and (3) every moment is unique,  meaning  every  edge  and  outcome  is  truly  a  unique  experience.  The  trade  either  works  or  it  doesn't. In any case, you wait for the next edge to appear and go through the process again and again. With this approach you will learn in a methodical, non-random fashion what works and what doesn't. And,  just  as  important,  you  will  build  a  sense  of  self-trust  so  that  you  won't  damage  yourself  in  an  environment that has the unlimited qualities the markets have. Most traders don't believe that their trading problems are the result of the way they think about trading or, more specifically, how they are thinking while they are trading. In my first book, The Disciplined Trader, I  identified  the  problems  confronting  the  trader  from  a  mental  perspective  and  then  built  a  philosophical framework for understanding the nature of these problems and why they exist.  I had five major objectives in mind in writing Trading in the Zone: To prove to the trader that more or better market analysis is not the solution to his trading difficulties or lack of consistent results. To convince the trader that it's his attitude and "state of mind" that determine his results. To  provide  the  trader  with  the  specific  beliefs  and  attitudes  that  are  necessary  to  build  a  winner's  mindset, which means learning how to think in probabilities. To address the many conflicts, contradictions, and paradoxes in thinking that cause the typical trader to assume that he already does think in probabilities, when he really doesn't. To  take  the  trader  through  a  process  that  integrates  this  thinking  strategy  into  his  mental  system  at  a  functional level. (Note: Until  recently,  most  traders  were  men,  but  I  recognize  that  more  and  more  women  are  joining  the ranks. In an effort to avoid confusion and awkward phrasing, I have consistently used the pronoun "he" throughout this book in describing traders. This certainly does not reflect any bias on my part.) Trading in the Zone presents a serious psychological approach to becoming a consistent winner in your trading. I do not offer a trading system; I am more interested in showing you how to think in the way necessary  to  become  a  profitable  trader.  I  assume  that  you  already  have  your  own  system,  your  own  edge. You must learn to trust your edge. The edge means there is a higher probability of one outcome than  another.  The  greater  your  confidence,  the  easier  it  will  be  to  execute  your  trades.  This  book  is 
designed to give you the insight and understanding you need about yourself and the nature of trading, so  that  actually  doing  it  becomes  as  easy,  simple,  and  stressfree  as  when  you're  just  watching  the  market and thinking about doing it. In order to determine how well you "think like a trader," take the following Attitude Survey. There are no right or wrong answers.  Your answers are an indication of how consistent your current mental framework is with the way you need to think in order to get the most out of your trading. ATTITUDE SURVEY 1. To make money as a trader you have to know what the marketis going to do next. Agree Disagree 2. Sometimes I find myself thinking that there must be a way to trade without having to take a loss. Agree Disagree 3. Making money as a trader is primarily a function of analysis. Agree Disagree 4. Losses are an unavoidable component of trading. Agree Disagree 5. My risk is always defined before I enter a trade. Agree Disagree 6. In my mind there is always a cost associated with finding out what the market may do next. Agree Disagree 7. I wouldn't even bother putting on the next trade if I wasn't sure that it was going to be a winner. Agree Disagree 8.  The  more  a  trader  learns  about  the  markets  and  how  they  behave,  the  easier  it  will  be  for  him  to  execute his trades. Agree Disagree
9. My methodology tells me exactly under what market conditions to either enter or exit a trade. Agree Disagree 10. Even when I have a clear signal to reverse my position, I find it extremely difficult to do. Agree Disagree 11. I have sustained periods of consistent success usually followed by some fairly drastic draw-downs in my equity. Agree Disagree 12. When I first started trading I would describe my trading methodology as haphazard, meaning some success in between a lot of pain. Agree Disagree 13. I often find myself feeling that the markets are against me personally. Agree Disagree 14. As much as I might try to "let go," I find it very difficult to put past emotional wounds behind me. Agree Disagree 15.  I  have  a  money  management  philosophy  that  is  founded  in  the  principle  of  always  taking  some  money out of the market when the market makes it available. Agree Disagree 16. A trader's job is to identify patterns in the markets' behavior that represent an opportunity and then to determine the risk of finding out if these patterns will play themselves out as they have in the past. Agree Disagree 17. Sometimes I just can't help feeling that I am a victim of the market. Agree Disagree 18. When I trade I usually try to stay focused in one time frame. Agree Disagree 19. Trading successfully requires a degree of mental flexibility far beyond the scope of most people.
Agree Disagree 20. There are times when I can definitely feel the flow of the market; however, I often have difficulty acting on these feelings. Agree Disagree 21. There are many times when I am in a profitable trade and I know the move is basically over, but I still won't take my profits. Agree Disagree 22. No matter how much money I make in a trade, I am rarely ever satisfied and feel that I could have made more. Agree Disagree 23. When I put on a trade, I feel I have a positive attitude. I anticipate all of the money I could make from the trade in a positive way. Agree Disagree 24.  The  most  important  component  in  a  trader's  ability  to  accumulate  money  over  time  is  having  a  belief in his own consistency. Agree Disagree 25. If you were granted a wish to be able to instantaneously acquire one trading skill, what skill would you choose? 26. I often spend sleepless nights worrying about the market. Agree Disagree 27. Do you ever feel compelled to make a trade because you are afraid that you might miss out? Yes No 28. Although it doesn't happen veiy often, I really like my trades to be perfect. When I make a perfect call it feels so good that it makes up for all of the times that I don't. Agree Disagree 29.  Do  you  ever  find  yourself  planning  trades  you  never  execute,  and  executing  trades  you  never 
planned? Yes No 30.  In  a  few  sentences  explain  why  most  traders  either  don't  make  money  or  aren't  able  to  keep  what  they make. Set aside your answers as you read through this book. Afte you've finished the last chapter ("Thinking Like  a  Trader"),  take  the  Attitude  Survey  again—it  s  reprinted  at  the  back  of  the  book.  You  may  be  surprised to see how much your answers differ from the first time."
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