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

by Mark Douglas

1. you have an edge that genuinely puts the odds of success in your favor;

2. you can think about trading in the appropriate manner (the five fu...

3. you can do everything you need to do over a s...

tradinginthezone.com

Trade Entry.

Stop-Loss Exit.

Let the market structure determine where this optimum point is, rather than using an arbitrary dollar amount that you are willing to risk on a trade.

it has to be absolutely exact, requiring no subjective decision making. Again, no extraneous or random variables can enter into

Time Frame.

all your entry and exit signals have to be based in th...

when you are buying dips (support) in an up-trending market or selling rallies (resistance) in a down-trending market.

Taking Profits.

the best course of action from a psychological perspective is to divide your position into thirds (or quarters), and scale out the position as the market

If you are trading futures contracts, this means your minimum position for a trade is at least three (or four) contracts. For stocks, the minimum position is any number of shares that is divisible by three (or four), so you don’t end up with an odd-lot order.

On average, only one out of every ten trades was an immediate loser that never went in my direction. Out of the other 25 to 30 percent of the trades that were ultimately losers, the market usually went in my direction by three or four tics before revising

I calculated that if I got into the habit of taking at least a third of my original position off every time the market gave me those three or four tics, at the end of the year the accumulated winnings would go a long way towards paying my expenses. I

In the S&P futures, I take a third off for a profit of one and a half to two full points.

I take the next third of the position off at some predetermined profit objective. This is based on some longer time frame support or resistance, or on the test of a previous significant high or low. When I take profits on the second third, I also move the stop-loss to my original

now have a “risk-free opportunity.”

still have a third of my position left. What now? I look for the most likely place for the market to stop. This is usually a significant high or low in a longer time frame.

One other factor you need to take into consideration is your risk-to-reward ratio.

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.

your winning trade percentage can be less than 50 percent and you will still make money consistently.

Every portion of a trade that you take off as a winner will contribute to your belief that you are a consistent winner. All

the numbers will eventually come into better alignment as your belief in your ability to be consistent becomes stronger.

Trading in...

This means that we have to expand our definition of success or failure from the limited trade-by-trade perspective of the typical trader

sample size of 20 trades

Your sample size has to be large enough to give your variables a fair and adequate test, but at the same time small enough so that if their effectiveness diminishes, you can detect it before you lose an inordinate amount of money. I

Testing. Once

Accepting the Risk.

know of is Auditrack.com.

Doing the Exercise.

Write down the five fundamental truths and the seven principles of consistency,

When this happens, refocus on exactly what you are trying to accomplish. If your purpose is to think objectively, disrupt the association process (so you can stay in the “now moment opportunity flow”); step through your fears of being wrong, losing money, missing out, and leaving money on the table (so you can stop making errors and start trusting yourself), then you’ll know exactly what you need to do.