You would benefit from adjusting your...

May 17, 2021

Mark Douglas #4 

This post is a continuation of the previous ones. 

What is Mark Douglas teaching us in his book Trading in the Zone? 

If you are a little bit confused about what you should do, I can understand why. 

Let us see if we can bring some clarity. Douglas is telling you that you would benefit from adjusting your attitudes and beliefs about trading in such a way that you can trade without the slightest bit of fear. While you learn to deal with emotions, you need to have a system and follow the rules of that framework. You need to ensure you don’t become heedless of danger or the consequences of your actions. 

If one trade is causing you a loss, fine. No problem. You should not care about the results of each individual trade.  And the system and framework you have will help you in not becoming overconfident and take on more risk than appropriate. 

Trading is in a certain way a paradox. You are in complete control of everything you do, it is a huge freedom. The curse is that there are no external rules or boundaries by nature to guide or structure your behavior. You need self-control and decide for yourself to follow certain rules, at least if you want to experience consistent, positive results. 

The structure you need to guide your behaviour has to originate in your own mind, as a conscious act based on your own free will to do so. 

Douglas says he has yet to encounter someone interested in trading who wants to start right away by creating a set of rules. The unwillingness to create rules might not be obvious. 

You might agree on the one hand that rules make sense, but you really have no intention of doing whatever is being suggested. Some people think this way because they might have a clever idea, at least it seems so to them. They don’t have the experience yet, so they do what they believe is the right thing to do. Thus, the resistance to follow rules can be intense. 

Douglas explores how our years of growth impacts our trading mindset. Most of our beliefs and reaction patterns was shaped as we grew up, as a result of choices made by others and us forming our behaviour based on what is going on in the social context around us. 

For some people, many denied impulses were never reconciled. If this is the case, these impulses will exist inside of us as frustration, anger, guilt, disappointment or even hatred. The accumulation of these negative feelings act as a force inside us to resist anything that denies us the freedom to do and be whatever we want, when we want.  

Freedom of creative expression, endless opportunities, might be the very reason we are attracted to trading in the first place. However, it is the very same reason we feel a natural resistance to creating the kinds of rules and boundaries that can appropriately guide our behavior. 

Douglas’s solution to being successful is half about eliminating fear, and the other half is the need to develop conditions that limit and restrict ourselves from taking in appropriate behavior.  

If you don’t learn to control yourself, then being successful by getting profits might be the most dangerous position to be in as a trader. Trades experience the most losses when they become reckless in a state of good feeling. 

To develop your mindset and psychology to have an attitude that sets yourself up for success, will give you better overall results as compared to being an expert in analysis or certain techniques. 

Consistency is created by focusing on developing a traders mindset. That explains why many people don’t succeed with investing and trading in the financial markets. 

Douglas want to keep us away from the trap that we believe we can make more money by learning about the markets. Instead, we will get what we want by thinking like traders. 

Let us have a look at what Douglas explains is an ideal set of trading beliefs of attitudes.   

First of all, a person with such a mindset beliefs that there’s no possible way to avoid a loss, because losing is a natural consequence of trading 

Secondly, an ideal trading mindset has completely accepted the risk, meaning that the trader has considered and accounted for all of what would otherwise be the unacceptable possibilities in the market’s behaviour, both financially and emotionally. It is unlikely that he would experience a deterioration of his attitude. If the trade is lost, he will simply go to the next trade. 

Only the very best traders have acquired the perspective described by Douglas. That is because it is a fundamental shift in attitude that accounts for their success, not some brilliant realization about the market, as most people erroneously assume. 

The implications are that if we haven’t learned to accept the inherent risks of trading and don’t know how to guard ourselves against making instantaneous shifts from joy to pain, and vice versa, then these natural behaviours and mindset of ours will lead to us blaming the market for our results instead of taking responsibility for them. 

Even though most people that trade consider themselves responsible adults, only the very best traders have reached a point where they accept complete responsibility for the outcome of any particular trade.  

Mark Douglas tells us that if you have ever found yourself blaming the market or feeling betrayed, then you have not given enough consideration to the implications of what it means to play a zero-sum game. Any degree of blaming means that you have not fully accepted the reality that the market owes you nothing, regardless of what you want or think or how much effort you put into trading. The market’s purpose is to separate you from your money; but in the process of doing so, it also provides you with an endless stream of opportunities for you to take money from it. 

All of this means that taking responsibility means believing that all of your outcomes are self-generated; that your results are based on three things. 

  1. your interpretations of market information,  
  2. the decisions you make and  
  3. the actions you take as a result.  

Taking anything less than complete responsibility sets up two major psychological obstacles that will block your success. First, you will establish an adversarial relationship with the market that takes you out of the constant flow of opportunities. Second, you will mislead yourself into believing that your trading problems and lack of success can be rectified through market analysis. The market is full of opportunities. You are not fighting the market but fighting yourself.

Developing a winning attitude is the key to your success. 

Mark Douglas doesn’t disagree with the fact that you can argue that some traders lose because they don’t understand enough about the market and therefore, they usually pick the wrong trades. His experience is that traders with a poor trading mindset and losing attitudes pick the wrong trades regardless of how much they know about the markets. In any case, the results are the same – they lose. 

According to Douglas, the opposite case is that traders with winning attitudes who know almost nothing about the markets can pick winners. When they know a lot about the markets, that will enable then to pick even more and better winners.

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