ZF Capital

The typical trader will do most anything to avoid creating definition and rules because he does not want to take responsibility for the results of his trading. If he knows exactly what he is going to do and under what conditions, then he would have something by which to measure his performance, thus making himself accountable to himself. This is exactly what most traders don’t want to do, preferring instead to keep their relationship with the market somewhat mysterious.

This creates a real psychological paradox for traders, because the only way to learn how to trade effectively is to make oneself accountable by creating structure: but, with accountability comes responsibility.

– Mark Douglas, The Disciplined Trader: Developing Winning Attitudes

The best traders can put on a trade without the slightest bit of hesitation or conflict, and just as freely and without hesitation or conflict, admit it isn’t working. They can get out of the trade — even with a loss — and doing so doesn’t resonate the slightest bit of emotional discomfort. In other words, the risks inherent in trading do not cause the best traders to lose their discipline, focus, or sense of confidence.

If you are unable to trade without the slightest bit of emotional discomfort (specifically, fear), then you have not learned how to accept the risks inherent in trading. This is a big problem, because to whatever degree you haven’t accepted the risk is the same degree to which you will avoid the risk. Trying to avoid something that is unavoidable will have disastrous effects on your ability to trade successfully.

– Mark Douglas, Trading in the Zone

It’s when you’re winning that your are most susceptible to making a mistake, overtrading, putting on too large a position, violating your rules, or generally operating as if no prudent boundaries on your behaviour are necessary. You may even go to the extreme of thinking you are the market. However, the market rarely agrees, and when it disagrees, you’ll get hurt. The loss and the emotional pain are usually significant. You will experience a boom, followed by the inevitable bust.

– Mark Douglas, Trading in the Zone

It’s the ability to believe in the unpredictability of the game at the micro level and simultaneously believe in the predictability of the game at the macro level that makes the casino and the professional gambler effective and successful at what they do. Their belief in the uniqueness of each hand prevents them from engaging in the pointless endeavor of trying to predict the outcome of each hand. They have learned and completely accepted the fact that they don’t need to know what’s going to happen next. More importantly, they don’t need to know in order to make money consistently.

Because they don’t have to know what’s going to happen next. They don’t place any special significance, emotional or otherwise, on each individual hand, spin of the wheel, or roll of the dice. In other words, they’re not encumbered by unrealistic expectations about what is going to happen, nor are their egos involved in a way that makes them have to be right. As a result, it’s easier to stay focused on keeping the odds in their favor and executing flawlessly, which in turn makes them less susceptible to making costly mistakes. They stay relaxed because they are committed and willing to let the probabilities (their edges) play themselves out, all the while knowing that if their edges are good enough and the sample sizes are big enough, they will come out net winners.

The best traders use the same thinking strategy as the casino and professional gambler. Not only does it work to their benefit, but the underlying dynamics supporting the need for such a strategy are exactly the same in trading as they are in gambling. A simple comparison between the two will demonstrate this quite clearly.

– Mark Douglas, Trading in the Zone

The effects of fear on one’s behavior are obvious, limiting one to the point of complete immobility. If you can’t execute your trades properly, even when you perceive the most perfect opportunity, it is because you have not released yourself from the pain contained in the memories of past trading experiences and because you still don’t trust yourself to act appropriately in any given set of conditions. If you did, there would be no fear or immobility.

– Mark Douglas, The Disciplined Trader

Before anyone can become successful in an environment with the unstructured character of the trading environment, one needs to develop a supreme sense of self-confidence and self trust. I am defining self-confidence as an absence of fear and self-trust: knowing what to do at the moment when it needs to be done, and then doing it without hesitation.

– Mark Douglas, The Disciplined Trader

One of the many contradictions of trading is that it offers a gift and a curse at the same time. The gift is that, perhaps for the first time in our lives, we’re in complete control of everything we do. The curse is that there are no external rules or boundaries to guide or structure our behavior. The unlimited characteristics of the trading environment require that we act with some degree of restraint and self-control, at least if we want to create some measure of consistent success. The structure we need to guide our behavior has to originate in your mind, as a conscious act of free will. This is where many problems begin.

– Mark Douglas, Trading in the Zone