Mark Douglas Trading In The Zone Summary Lessons
When Mark Douglas wrote this book, he truly had the traders’ psychology in mind. In this article, I will cover a Trading In The Zone summary so that you can understand eight important lessons. When trading, it is always crucial to develop the right mindset. Winning in the markets always comes down to developing the right attitude.
Mark Douglas covers how one can develop a monster mentality while trading. This is always crucial to one being profitable throughout a trading career.
Probabilism And Market Analysis In Trading
As we read through the book we can see that Douglas focuses mainly on developing a working plan for your trading. Many people fail to make profits or even break even in the markets because trading is an emotional exercise.
Unlike other forms of business, trading does not really care how much work you put into learning it. You can spend hours researching new strategies to be able to “beat” the markets, but the market will not care. I always tell my students that the markets do not know why they are there.
When we talk about the probability of trades going wrong for beginners in trading, most of them get scared. What usually comes to their mind is whether they will lose all their hard-earned cash. Some people do lose all their accounts, and this usually comes down to one reason, not understanding how to analyze the markets.
If you take a look at our Forex Course you can see that all the strategies covered there give you a winning probability. Most beginners usually go to the markets with the aim of buying everything. Then they end up losing it all. This apparently happens to 98% of the traders. As difficult as it may sound, trading is an industry where 98% of people don’t succeed.
So how does one succeed? Well, continue reading to find out what Mark Douglas’s solutions are.
Adapting To The Anything Can Happen Mindset
While I was going through the Trading In The Zone book, I noticed something that I was doing as a beginner. Apparently, this did not start with me, as I have seen that it is a problem with many traders and still is.
Many traders usually go for a trade based on other people’s analysis. Following other people’s trades can be detrimental to your overall success going forward. I probably know that maybe some time ago you purchased this copy trading service, and it went well for you, for a while.
When we talk about profitability in the markets we don’t simply want to be right about a strategy for a while. We want a strategy that works well for us for a few years or many years to come.
This is what I noticed happens to most traders. You get into a trade, and it goes well for a couple of minutes or hours, and you already start imagining how you will spend the money to make more money. Then suddenly, the winning trade changes to a losing trade.
When you are in this situation, you will not really know what to do. You will have questions: should I close the trade; will the trade go back in the predicted direction; when can I get out of this trade?
So, What To Do?
You probably have been there before. The only best option that you always come up with at that time is that the market will eventually go your way. That decision will have turned you from being a trader to becoming an investor.
You will have already lost the battle. In this case, you will only want to win in the market. This disregards the possibility of taking a loss in your trading. Which is a major contributing factor to being on the majority side for 98% of traders.
Trading In The Zone Summary – Eliminating Your Fear
Trading with fear is mostly a result of not being able to put emotions aside while trading. I know you have heard this or been told this multiple times before. Don’t trade emotionally, as they always tell you. Be it your mentor or your favorite YouTuber or your fellow trader.
No matter how many times you are told the same thing, you will find it hard not to do it. So, how do you eliminate this problem? In this Trading In The Zone summary, we will talk about how to stop that by developing a trading plan or routine.
The Perfect Trading Plan I Recommend
Trading without a trading plan is simply trading blindly. In this Trading In The Zone summary, we talk about how to develop a plan. To be able to achieve consistency in your trading, I advise you to develop these aspects in your trading plan:
Reward To Risk Ratio
For you to have an advantage in the markets, you also need a good potential reward for the trades you get into.
An example; you can have the option to take only one trade from two trade setups in the AUDUSD and GBPUSD pairs. The first trade in the AUDUSD pair gives you a take profit of 30 pips, the same as the GBPUSD pair. However, the AUDUSD pair has a stop loss of 30 pips, whereas the GBPUSD pair has a stop loss of 10 pips.
Which of the two trades do you take? The trade with the lowest risk is obviously the GBPUSD. The GBPUSD pair not only gives you a smaller risk but also gives you a chance to triple your earnings. We call this a 3:1 reward-to-risk ratio. The AUDUSD pair only gives you a 1:1 reward-to-risk ratio.
If you don’t understand how to use take profits or stop losses go and check out our free Fintrex Fx Forex Course.
Clarify Your Risk
It is always important to define your risk before getting into a trade. A great position to take a loss is when the trade is no longer in your favor. Emotional trading is always the result of failing to define a risk position. This limits your decision to take losses, and you will end up holding onto the trade. Holding on to losing trades almost always results in losing accounts.
Clarify Your Reward
Taking profits is just as important as taking losses. When you don’t take your profits, there are higher chances of turning winning trades into losing ones. If you want to continue running a winning trade, you will most likely run into a loss.
Clarify Your Entry
While considering your entry plan, you need to understand what rules make you enter a trade. You can’t make rules and then break them. Breaking your own rules always results in unplanned trades and losses.
Clarify Your Exit
An exit plan enables you to know when to exit a trade. This can be in both cases where the trade goes your way and when it does not. Possible exits can be initiated with time, price level, P&L, indicator value, probability of profit, etc.
Any Other Plan
You can add other things to your trading plan to make it more effective for you. This will guide you and prevent unnecessary losses in the markets.
Trading In The Zone Summary – Developing A Trading Edge In The Markets
It is very easy to fall into many traps when trading. The main one is that you are trying to force an expectation on the market. Just like I stated before, the market does not know why you are there.
It is always important to detach yourself from the results that you get and focus on the process. Is this me being a “self-help guru” now? What I simply mean by this is that you should practice developing a working strategy. You already know that I believe in following a rules-based strategy. This has worked for me for quite a number of years.
You should develop a three-phase strategy when it comes to your trading;
First Phase: Before Trade
1. You should first analyze the markets and understand what the market did the previous week and what you expect it to do then.
2. Determine at which points you will be getting into the market.
3. Point out your take profit and stop loss prices.
4. Decide on the amount of risk you are willing to take.
Second Phase: During Trade
1. You can start placing limit and stop orders for already analyzed trades.
2. Continue analyzing the markets as you look for more opportunities.
3. Don’t focus on observing the trades while the trades are going on, as this leads to emotional decisions.
4. Never adjust your stop loss or increase your risk because a trade is going your way.
Third Phase: After Trade
1. Write down your journal entry for the day.
2. Go back to the first phase.
I cannot emphasize enough how important it is for you to let your strategy and rules determine your trades. If you are at this point and are considering opening a broker account, I have the best broker you can get started with. Click here to create a trading account now.