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by
Mark Douglas
Learning to accept the risk is a trading skill—the most important skill you can learn.
These are not market-generated errors. That is, these errors do not come from the market. The market is neutral,
in the sense that it moves and generates information about itself. Movement and information provide each of us with the opportunity to do something, but that’s all!
The best traders aren’t afraid. They aren’t afraid because they have developed attitudes that give them the greatest degree of mental flexibility to flow in and out of trades based on what the market is telling them about the possibilities from its perspective. At the same time, the best traders have developed attitudes that prevent them from getting reckless.
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.
These thinking patterns are so deeply ingrained that it rarely occurs to us that the source of our trading difficulties is internal, derived
from our state of mind. Indeed, it seems much more natural to see the source of a problem as external, in the market, because it feels like the market is causing our pain, frustration, and dissatisfaction.
Confidence and fear are contradictory states of mind that both stem from our beliefs and attitudes. To be confident, functioning in an environment where you can easily lose more than you intend to risk, requires absolute trust in yourself. However, you won’t be able to achieve that trust until you have trained your mind to override your natural inclination to think in ways that are counterproductive to being a consistently successful trader. Learning how to analyze the market’s behavior is simply not the appropriate training.
Trading is an activity that offers the individual unlimited freedom of creative expression, a freedom of expression that has been denied most of us for most of our lives.
successful traders have virtually eliminated the effects of fear and recklessness from their trading. These two fundamental characteristics allow them to achieve consistent results.
The point I am making is that winning in any endeavor is mostly a function of attitude.
What makes trading so fascinating and, at the same time, difficult to learn is that you really don’t need lots of skills; you just need a genuine winning attitude.
Remember our 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.
You are responsible for developing your own winning attitude.
no amount of market analysis will compensate for developing a winning attitude if you lack one.
If you want to change your experience of the markets from fearful to confident, if you want to change your results from an erratic equity curve to a steadily rising one, the first step is to embrace the responsibility and stop expecting the market to give you anything
or do anything for you.
Winning and consistency are states of mind in the same way that happiness, having fun, and satisfaction are states of mind.
Traders who are consistently successful are consistent as a natural expression of who they are.
They don’t have to try to be consistent; they are consistent.
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.
Accepting the risk means accepting the consequences of your trades without emotional discomfort or fear.
If there is such a thing as a secret to the nature of trading, this is it: At the very core of one’s ability 1) to trade without fear or overconfidence, 2) perceive what the market is offering from its perspective, 3) stay completely focused in the “now moment opportunity flow,” and 4) spontaneously enter the “zone,” it is a strong virtually unshakeable belief in an uncertain outcome with an edge in your favor.
Their belief in uncertainty is so powerful that it actually prevents their minds from associating the “now moment” situation and circumstance with the outcomes of their most recent trades.
The essence of what it means to be in “the zone” is that your mind and the market are in sync.
The zone is a mental space where you are doing more than just reading the collective mind, you are also in complete harmony with it.
There are two mental hurdles to overcome. The first is the focus of this chapter: learning how to keep your mind focused in the “now moment opportunity flow.” In order to experience synchronicity, your mind has to be open to the market’s truth, from its perspective.
The first step on the road toward getting your mind and the market in sync is to understand and completely accept the psychological realities of trading.
The analyst was using a method called “point and line,” developed by Charlie Drummond. (Among other things, point and line can accurately define support and resistance.)
We have to be rigid in our rules and flexible in our expectations.
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 ...
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To eliminate the emotional risk of trading, you have to neutralize your expectations about what the market will or will not do at any given moment or in any given situation.
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.
The idea is to create a carefree state of mind that completely accepts the fact that there are always unknown forces operating in the market.
losses are simply the cost of doing business or the amount of money I need to spend to make myself available for the winning trades.
On the other hand, if you believe that all you need to know is: 1. the odds are in your favor before you put on a trade; 2. how much it’s going to cost to find out if the trade is going to work; 3. you don’t need to know what’s going to happen next to make money on that trade; and 4. anything can happen; Then how can the market make you wrong?
our beliefs shape the way we experience our lives.
we’re not born with any of our beliefs. They’re acquired, and as they accumulate,
“What is the truth?” The answer is, whatever works.
If beliefs impose limitations on what we perceive as possible, and the environment can express itself in an infinite combination of ways, then beliefs can only be true relative to what we are attempting to accomplish at any given moment.
In other words, the relative degree of truth inherent in our beliefs can be measure...
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if we find ourselves in a state of dissatisfaction, disappointment, frustration, confusion, despair, regret, or hopelessness, we can say that relative to the environmental situation and circumstances, the beliefs we are operating from don’t work well or at all, and therefore are not useful. Simply put, the truth is a function of whatever works in relation to what we are trying to accomplish at any given moment.
energy can neither be created nor destroyed; it can only be transformed. If beliefs are energy—structured, conscious
energy that is aware of its existence—then
The easiest and most effective way to work with our beliefs is to gently render them inactive or nonfunctional by
drawing the energy out of them. I call this process de-activation.
After de-activation, the original structure of the belief remains intact, so technically it hasn’t changed. The difference is that the belief no longer has any energy. Without energy, it doesn’t have the potential to act as ...
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Thinking outside of the boundaries of our beliefs is commonly referred to as creative thinking.
