Trading in the Zone: Master the Market with Confidence, Discipline, and a Winning Attitude

by Mark Douglas

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.

people who trade (and consequently move prices) don’t always act in a rational manner.

The best traders can put on a trade without the slightest bit of hesitation or conflict, and just as freely and without hesitation or conflict, admit it isn’t working. They can get out of the trade—even with a loss—and doing so doesn’t resonate the slightest bit of emotional discomfort. In other words, the risks inherent in trading do not cause the best traders to lose their discipline, focus, or sense of confidence. If you are unable to trade without the slightest bit of emotional discomfort (specifically, fear), then you have not learned how to accept the risks inherent in trading. This is a big problem, because to whatever degree you haven’t accepted the risk, is the same degree to which you will avoid the risk. Trying to avoid something that is unavoidable will have disastrous effects on your ability to trade successfully.

Ninety-five percent of the trading errors you are likely to make—causing the money to just evaporate before your eyes—will stem from your attitudes about being wrong, losing money, missing out, and leaving money on the table. What I call the four primary trading fears.

The successful trader that you want to become is a future projection of yourself that you have to grow into.

Whatever we believe we were deprived of as children can easily become addictions in adulthood.

once you’re in a losing trade, you don’t have to do anything to keep on losing. You don’t even have to watch. You can just ignore the situation, and the market will take everything you own—and more.

The hard reality of trading is that, if you want to create consistency, you have to start from the premise that no matter what the outcome, you are completely responsible.

When you put on a trade, it is in anticipation of making money. Every other trader in the world who puts on a trade does so for the same reason. When you look at your relationship with the market from this perspective, you could say that your purpose is to extract money from the markets, but, by the same token, the market’s sole purpose is to extract money or opportunity from you.

the market owes you nothing, regardless of what you want or think or how much effort you put into your trading.

When you project any degree of responsibility onto the market for giving you money or cutting your losses, the market can all too easily take on the quality of an adversary or enemy.

Although it may feel as if you are fighting the market, or it is fighting you, the reality is you are simply fighting the negative consequences of not fully accepting that the market owes you nothing; and that you need to take advantage of the opportunities it presents by yourself, 100 percent and not one degree less.

definition of a winning attitude: a positive expectation of your efforts with an acceptance that whatever results you get are a perfect reflection of your level of development and what you need to learn to do better.

Traders who are consistently successful are consistent as a natural expression of who they are.

The best traders stay in the flow because they don’t try to get anything from the market; they simply make themselves available so they can take advantage of whatever the market is offering at any given moment.

Our minds are designed to automatically block threatening information or find a way to obscure that information, in order to shield us from the emotional discomfort we naturally feel when we don’t get what we want. You won’t realize it in the moment, but you will pick and choose information that is consistent with what you expect, so that you can maintain a pain-free state of mind.

Accepting the risk means accepting the consequences of your trades without emotional discomfort or fear.

If you can learn to create a state of mind that is not affected by the market’s behavior, the struggle will cease to exist.

The market generates information about its potential to move from a neutral perspective. At the same time, it provides you (the observer) with an unending stream of opportunities to do something on your own behalf. If what you perceive at any given moment causes you to feel fear, ask yourself this question: Is the information inherently threatening, or are you simply experiencing the effect of your own state of mind reflected back to you

all price movement or lack of movement is a function of the relative balance or imbalance between two primary forces: traders who believe the price is going up, and traders who believe the price is going down.

Not predefining your risk, not cutting your losses, or not systematically taking profits are three of the most common—and usually the most costly—trading errors you can make. Only the best traders have eliminated these errors from their trading.

emotional responses to the outcome of any particular trade are equivalent to how the typical trader would feel about flipping a coin, calling heads, and seeing the coin come up tails. A wrong call, but for most people being wrong about predicting the flip of a coin would not tap them into the accumulated pain of every other time in their lives they had been wrong.

We need to be rigid in our rules so that we gain a sense of self-trust that can, and will always, protect us in an environment that has few, if any, boundaries. We need to be flexible in our expectations so we can perceive, with the greatest degree of clarity and objectivity, what the market is communicating to us from its perspective.

A probabilistic mind-set pertaining to trading consists of five fundamental truths. 1. Anything can happen. 2. You don’t need to know what is going to happen next in order to make money. 3. There is a random distribution between wins and losses for any given set of variables that define an edge. 4. An edge is nothing more than an indication of a higher probability of one thing happening over another. 5. Every moment in the market is unique.

When you use “other” information, outside the parameters of your edge to decide whether you will take the trade, you are adding random variables to your trading regime. Adding random variables makes it extremely difficult, if not impossible, to determine what works and what doesn’t. If you’re never certain about the viability of your edge, you won’t feel too confident about it. To whatever degree you lack confidence, you will experience fear. The irony is, you will be afraid of random, inconsistent results, without realizing that your random, inconsistent approach is creating exactly what you are afraid of.

If producing consistent results is your primary objective as a trader, then creating a belief (a conscious, energized concept that resists change and demands expression) that “I am a consistently successful trader” will act as a primary source of energy that will manage your perceptions, interpretations, expectations, and actions in ways that satisfy the belief and, consequently, the objective.

When it comes to personal transformation, the most important ingredients are your willingness to change, the clarity of your intent, and the strength of your desire.

Beliefs can be changed, and if it’s possible to change one belief, then it’s possible to change any belief, if you understand that you really aren’t changing them, but are only transferring energy from one concept to another.

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

When you genuinely accept the risks, you will be at peace with any outcome. When you’re at peace with any outcome, you will experience a carefree, objective state of mind, where you make yourself available to perceive and act upon whatever the market is offering you

Time Frame. Your trading methodology can be in any time frame that suits you, but all your entry and exit signals have to be based in the same time frame.

The risk-to-reward ratio is the dollar value of how much risk you have to take relative to the profit potential. Ideally, your risk-to-reward ratio should be at least 3:1, which means you are only risking one dollar for every three dollars of profit potential. If your edge and the way you scale out of your trades give you a 3:1 risk-to-reward ratio, your winning trade percentage can be less than 50 percent and you will still make money consistently.