Trading in the Zone

Submitted by Book Library on 24 February, 2010 - 17:50

Maximizing the trader’s state of mind is the key to successful results. Conflicts, contradictions and paradoxes in thinking can spell disaster for even a highly motivated, astute and well grounded trader. Mark Douglas, a trader, personal trading coach, and industry consultant since 1982, sends the message that "thinking strategy" will profoundly influence a trader’s success rate. Douglas' book, Trading in the Zone, addresses five very specific issues to give traders the insight and understanding about themselves that will make them consistent winners in the market.

Trading in the Zone: How to create a state of mind that eliminates the fear, stress and anxiety, offers specific solutions to the “people factor” of commodity price movement. It uncovers the true culprit for lack of consistency when it comes to stock picking: lack of focus and self-confidence. Through simple exercises, traders will learn how to think in terms of probabilities, and adopt the specific beliefs necessary to developing a winner’s mindset. Along the way, they’ll gain valuable insights into their own entrenched misconceptions about the market.

Douglas, president of the seminar firm Trading Behavior Dynamics, focuses on the psychology of successful traders. Instead of offering specific strategies, he advises readers, "The first step on the road...is to understand and completely accept the psychological realities of trading." Trading in the Zone: Master the Market with Confidence, Discipline and a Winning Attitude may be too abstract for some, but given trading's risks, Trading in the Zone could assist experienced investors willing to engage in self-reflection.

Backed by compelling examples, Trading In The Zone adds a new dimension to getting an edge on the market. Through a better understanding of themselves, as well as of Wall Street’s realities, traders will come to leverage the power of their psyche for unprecedented profitability.

Trading in the Zone is an Essential Book to Becoming a Successful Trader

The zone is a fearless, flexible and probabilistic state of mind that is consistently focused in what Douglas calls the "now moment opportunity flow" of the market based on objectively-identified edges. According to Douglas, the "now moment" means that "there is no potential to associate an opportunity to get into, get out of, add too, or detract from a trade with a past experience that already exists in your mental environment" (pg. 130). Consistently successful trading requires a high degree of mental flexibility, based on certain fearless attitudes and a probabilistic mind-set, to flow in and out of trades based on what the market is saying about the possibilities from its perspective. One must have a trading system that eliminates one's susceptibility to typical trading errors (as listed on page 186) and duplicates how a casino operates. Like the casinos, the consistently successful traders know that over a series of events (or trades), the odds are in their favor, but in order to realize the benefits of the favorable odds, they have to participate in every event (or trade). In other words, they know they won't be successful on every single trade at the micro level, but on the macro level the outcomes over a series of trades will produce consistently successful results provided that the following is true:

  1. one has an edge that genuinely puts the odds of success in your favor;
  2. you can think about trading in the appropriate manner, and
  3. you can do everything you need to do over a series of trades.

Regarding the first, you must know what defines an edge which requires you to be well educated in market/technical analysis. Douglas assumes that most of the people reading his book have this education. Regarding the second, Douglas provides five fundamental truths that must be mentally absorbed to approach trading successfully. Regarding the third, Douglas provides a trading exercise in the last chapter that requires your trading system to fit within seven specifications (from trade entry to accepting the risk). The purpose of the exercise is to help integrate the five fundamental truths into your mind (belief system).

In addition to the five fundamental truths, Douglas also provides in the last chapter seven complementary principles of consistency which he calls "sub-beliefs" to, or reasons for, the primary objective of believing one is a consistent winner at trading. He also introduces and explains the trader's three stages of development: the mechanical, the subjective, and the intuitive. The first ten chapters of the book contain a lot of general information related to beliefs and expectations that is beneficial to self-understanding outside of trading but is specifically applied to trading as preparation for the essential and culminating last chapter, Thinking Like a Trader, which includes the trading exercise. For experienced traders, I recommend completing the survey at the beginning of the book and then, after one has studied the text, complete it again to see how the book's content impacted one's trading beliefs and practice. As a novice to the field of trading, I consider this book essential reading for both newcomers and professionals although the latter will probably appreciate it more.

Simple Advice, A Disappointing Read

I have never written a book review till today but was so disappointed by this writing and weak trading advice that I felt compelled to share my opinion with the world. Like many others I purchased Trading in the Zone based on the glowing reviews of other readers. Frankly, after grinding through this tome and it is a grind I could not determine what all the hoopla was about. Mr Douglas' message is simple:

  1. Don't delude yourself into trying to see things in the market that aren't really there and
  2. Anything can happen in the market so beware.

Why not just say that? My apologies to Mr. Douglas but he is a difficult read and says in thousands of words what could be said in much fewer and with more clarity. Do yourself a favor and actually try to read through this book in a bookstore. If you can get through it and it resonates with you then buy it. Otherwise save yourself the considerable cost of this book and find something else. There are probably many other better choices out there on the subject.

Author Biography

Mark Douglas is the author of NYIF's The Disciplined Trader. He is president of Trading Behavior Dynamics, which develops seminars on trading psychology for brokerage houses, clearing firms, and banks, among a wide range of professional organizations. He lives in Scottsdale, Arizona.

Thom Hartle wrote the forward for Trading in the Zone. He is vice president of Wizard on Wall Street, Inc., publishers of professional level study courses for traders, and editor of e Charts.com, an educational website for traders and investors interested in technical analysis. For nine years, he was the editor of Technical Analysis of Stocks and Commodities.

Table of Contents

  1. CHAPTER 1 THE ROAD TO SUCCESS: FUNDAMENTAL, TECHNICAL, OR MENTAL ANALYSIS?
    • IN THE BEGINNING: FUNDAMENTAL ANALYSIS 1
    • THE SHIFT TO TECHNICAL ANALYSIS 3
    • THE SHIFT TO MENTAL ANALYSIS 4
  2. CHAPTER 2 THE LURE (AND THE DANGERS) OF TRADING
    • THE ATTRACTION 17
    • THE DANGERS 20
    • THE SAFEGUARDS 25
    • Problem: The Unwillingness to Create Rules 27
    • Problem: Failure to Take Responsibility 28
    • Problem: Addiction to Random Rewards 30
    • Problem: External versus Internal Control 31
  3. CHAPTER 3 TAKING RESPONSIBILITY
    • SHAPING YOUR MENTAL ENVIRONMENT 34
    • REACTING TO LOSS 38
    • WINNERS, LOSERS, BOOMERS, AND BUSTERS 5O
  4. CHAPTER 4 CONSISTENCY: A STATE OF MIND
    • THINKING ABOUT TRADING 58
    • REALLY UNDERSTANDING RISK 61
    • ALIGNING YOUR MENTAL ENVIRONMENT 64
  5. CHAPTER 5 THE DYNAMICS OF PERCEPTION
    • DEBUGGING YOUR MENTAL SOFTWARE 70
    • PERCEPTION AND LEARNING 74
    • PERCEPTION AND RISK 79
    • THE POWER OF ASSOCIATION 80
  6. CHAPTER 6 THE MARKET'S PERSPECTIVE
    • THE "UNCERTAINTY" PRINCIPLE 88
    • THE MARKET'S MOST FUNDAMENTAL CHARACTERISTIC 93
  7. CHAPTER 7 THE TRADER'S EDGE: THINKING IN PROBABILITIES
    • PARADOX: RANDOM OUTCOME, CONSISTENT RESULTS 102
    • TRADING IN THE MOMENT 106
    • MANAGING EXPECTATIONS 113
    • ELIMINATING THE EMOTIONAL RISK 120
  8. CHAPTER 8 WORKING WITH YOUR BELIEFS
    • DEFINING THE PROBLEM 125
    • DEFINING THE TERMS 128
    • HOW THE FUNDAMENTAL TRUTHS RELATE TO
    • THE SKILLS 130
    • MOVING TOWARD "THE ZONE 135
  9. CHAPTER 9 THE NATURE OF BELIEFS
    • THE ORIGINS OF A BELIEF 139
    • BELIEFS AND THEIR IMPACT ON OUR LIVES 142
    • BELIEFS VS. THE TRUTH 147
  10. CHAPTER 10 THE IMPACT OF BELIEFS ON TRADING
    • THE PRIMARY CHARACTERISTICS OF A BELIEF 153
    • SELF-EVALUATION AND TRADING 167
  11. CHAPTER 11 THINKING LIKE A TRADER
    • THE MECHANICAL STAGE 173
    • THE ROLE OF SELF-DISCIPLINE 179
    • CREATING A BELIEF IN CONSISTENCY 184
  12. EXERCISE: LEARNING TO TRADE AND EDGE LIKE A CASINO 189

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