Successful trading is achieved by ...

June 3, 2021

Successful trading is achieved by eliminating the emotional risk. You can do so by neutralising your expectations about what the market will or will not do at any given moment or in any given situation. You can do this by being willing to think from the market’s perspective. Remember, the market is always communicating in probabilities. To think in probabilities, you have to create a mental framework or mindset that is consistent with the underlying principles of a probabilistic environment. 

Are you thinking the same as me? “What does that mean?” 

Luckily, Mark Douglas presents the 5 fundamental truths a probabilistic mindset for trading consists of 

  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.
    If you have tuned in to the previous episodes, you might remember that traders who have learned to think in probabilities are confident in their overall success. This is their edge. Their confidence stems from the fact that they commit themselves to taking every trade that conforms to their definition of an edge. Successful traders have stopped trying to predict outcomes. 
     
  5. Every moment in the market is unique. 

Does this mean you should expect random outcomes? Mark reminds us that expecting a random outcome doesn’t mean that you can’t use your full reasoning and analytical abilities to project an outcome, or that you can’t guess what’s going to happen next, or have a hunch or feeling about it, because you can. 

But you just can’t expect to be right every time. And remember that when you are right, you can’t expect that whatever you did that worked the last time will work again the next time, even though the situation may look sound, or even feel exactly the same.  

The best traders are present. They see what is going on now because there is no stress.  

I know for myself that there is no need to stress. The market will present more opportunities if you miss a particular one. Remember, preserving your capital should be your number one priority. Otherwise, what will you trade with? 

Mark says there is no need to stress because there is nothing at risk other than the amount of money you are willing to spend on that specific trade. Successful trading is about quantifying the risk before getting into the trade. Them you don’t have to try to be right or trying to avoid being wrong. Successful traders are not trying to prove anything. Successful traders completely accept what the market is offering them. Either the market tells them their edges aren’t working or it is time to take profits. It doesn’t matter to them what the outcome of the trade will be. 

We are about to wrap up this series on Mark Douglas’s book “Trading in the zone”.  

No expectations, see what the market does, use your edge, calculate risk, and being in the zone are key elements you have learned from the previous episodes if you listened to them. Otherwise, feel free to tune in to them before continuing.  

Of all the things we have learned from Mark. Does it all boil down to being careless? Mark says carefree means confident, to not feel any fear, hesitation, or compulsion to do anything. To remove the sense of threat, you have to accept the risk of trading completely. When you have accepted the risk, you will be at peace with any outcome. 

Mark Douglas states that you as a trader can be a consistent winner because: 

  • You objectively identify your edges; 
  • You predefine the risk on every trade; 
  • You completely accept the risk and you are willing to let go of the trade; 
  • You act on the edges without reservation or hesitation; 
  • You pay yourselves as the market makes money available to you; 
  • You continually monitor your susceptibility for making errors; 
  • You understand the absolute necessity of the principles of consistent success and, therefore, you never violate them. 

These beliefs are the seven principles of consistency.  

What is left! Get a proven strategy, work on your mindset, and jump into the market. Get from where you are now, to where you want to be 

As I wrap up this series of key takeaways from Douglas’s book “Trading in the Zone”, I want to thank Jan Ter Welle for bringing this knowledge to my attention and his amazing summary of the book. 

Image by 99mimimi from Pixabay 

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