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

by Mark Douglas

Without that belief, his mind will automatically, and usually without his conscious awareness, cause him to avoid, block, or rationalize away any information that indicates the market may do something he hasn’t accepted as possible.

If he believes that anything is possible, then there’s nothing for his mind to avoid.

by establishing a belief that anything can happen, he will be training his mind to think in probabilities.

Events that have probable outcomes can produce consistent results, if you can get the odds in your favor and there is a large enough sample size.

In trading, the known variables (from each individual trader’s perspective) are the results of their market analysis.

Market analysis finds behavior patterns in the collective actions of everyone participating in a market.

the trader’s analytical tools are the known variables that put the odds of success (the edge) for any given trade in the trader’s favor,

the unknown variables are all other traders who have the potential to come into the market to put on or take off a trade.

What factors will determine whether the market unfolds in the direction of his edge or against it? The answer is: the behavior of other traders!

Since all trades have an uncertain outcome, then like gambling, each trade has to be statistically independent of the next trade, the last trade, or any trades in the future, even though the trader may use the same set of known variables to identify his edge for each trade.

if the outcome of each individual trade is statistically independent of every other trade, there must also be a random distribution between wins and losses in any given string or set of trades, even though the odds of success for each individual trade may be in the trader’s favor.

A constant flow of both known and unknown variables creates a probabilistic environment where we don’t know for certain what will happen next.

Being aware of uncertainty and understanding the nature of probabilities does not equate with an ability to actually function effectively from a probabilistic perspective.

Thinking in probabilities can be difficult to master, because our minds don’t naturally process information in this manner.

Quite the contrary, our minds cause us to perceive what we know, and what we know is part of our past, whereas, in the market, every moment is new and unique, even though there may be s...

This means that unless we train our minds to perceive the uniqueness of each moment, that uniqueness will automatically ...

We will perceive only what we know, minus any information that is blocked by our fears; everythin...

We can assume that he was operating out of a belief that to be a disciplined trader one has to define the risk and put a stop in. And so he did. But a person can put in a stop and at the same time not believe that he is going to be stopped out or that the trade will ever work against him, for that matter.

When you’ve trained your mind to think in probabilities, it means you have fully accepted all the possibilities (with no internal resistance or conflict) and you always do something to take the unknown forces into account.

Thinking this way is virtually impossible unless you’ve done the mental work necessary to “let go” of the need to know what is going to happen next or the need to be right on each trade.

the degree by which you think you know, assume you know, or in any way need to know what is going to happen next, is equal to the degr...

Traders who have learned to think in probabilities are confident of their overall success, because they commit themselves to taking every trade that con...

They have found that by taking every edge, they correspondingly increase their sample size of trades, which in turn gives whatever edge they use ample opportunity to play itself out in their favor, just like the casinos.

The irony is that if he completely accepted the fact that certainty doesn’t exist, he would create the certainty he craves: He would be absolutely certain that certainty doesn’t exist.

When you achieve complete acceptance of the uncertainty of each edge and the uniqueness of each moment, your frustration with trading will end.

decide before executing a trade what the market has to look, sound, or feel like to tell you your edge isn’t working?

The typical trader won’t predefine the risk of getting into a trade because he doesn’t believe it’s necessary.

The only way he could believe “it isn’t necessary” is if he believes he knows what’s going to happen next.

The reason he believes he knows what’s going to happen next is because he won’t get into a trade until he...

At the point where he’s convinced the trade will be a winner, it’s no longer necessary to define the risk (because ...

he defines his risk, he is willfully gathering evidence that would negate something he has already convinced himself of.

For the traders who have learned to think in probabilities, there is no dilemma. Predefining the risk doesn’t pose a problem for these traders because they don’t trade from a right or wrong perspective.

They have learned that trading doesn’t have anything to do with being right or wrong on any individual trade.

If each moment in the market is unique, and anything is possible, then any expectation that does not reflect these boundary-less characteristics is unrealistic.

We have to be careful about what we project out into the future, because nothing else has the potential to create more unhappiness and emotional misery than an unfulfilled expectation.

Because our expectations come from what we know, when we decide or believe that we know something, we naturally expect to be right.

If we’re going to feel great if the market does what we expect it to do, or feel horrible if it doesn’t, then we’re not exactly neutral or open-minded.

the force of the belief behind the expectation will cause us to perceive market information in a way that confirms what we expect (we naturally like feeling good); and our pain-avoidance mechanisms will shield us from information that doesn’t confirm what we expect (to keep us from feeling bad).

To protect ourselves from painful information at the conscious level, we rationalize, justify, make excuses, willfully gather information that will neutralize the significance of the conflicting information, get angry (to ward off the conflicting information), or just plain lie to ourselves.

At the subconscious level,

our minds may block our ability to see other alternatives, even though in other circumstances we wo...

We all have the potential to engage in self-protective pain-avoidance mechanisms, because they’re natural functions of the way our minds operate.

But more often, our pain-avoidance mechanisms are just protecting us from information that would indicate that our expectations do not correspond with what is available from the environment’s perspective. This is where our pain-avoidance

mechanisms do us a disservice, especially as traders.

To experience the potential effects of information, whether negative or positive, requires an interpretation.

Defining and interpreting information is a function of what we assume we know or what we believe to be true. If what we know or believe is in fact true—and we wouldn’t believe it if it weren’t—then when we project our beliefs out into some future moment as an expectation, we naturally expect to be right. When we expect to be right, any information that doesn’t confirm our version of the truth automatically becomes threatening.

Any information that has the potential to be threatening also has the potential to be blocked, distorted, or diminished in significance by our pain-avoidance mechanisms.

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.

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.