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Trading in the Zone with these 12 steps

The 5 Fundamental Truths of Trading:

1. Anything can happen.
2. You don’t need to know what is going to happen next 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.
5. Every moment in the market is unique.

The 7 Principles of Consistency:

1. I objectively identify my edges.
2. I predefine the risk of every trade.
3. I completely accept the risk or I am willing to let go of the trade.
4. I act on my edges without reservation or hesitation.
5. I pay myself as the market makes money available to me.
6. I continually monitor my susceptibility for making errors.
7. I understand the absolute necessity of these principles of consistent success
and, therefore, I never violate them.

Trading in the Zone

These Beliefs are the Seven Principles of Consistency from Mark Douglas’s “Trading in the Zone” I highly recommend picking this book up to add to your collection, because it has benefited me tremendously in understand how beliefs and values play a vital role in one’s trading and ultimate success.

I remember the first time I picked this book up I didn’t “get” it and put it away. About a year later I read it again and it just clicked. I now reference it on a weekly schedule just so the principles in the book stay fresh in my mind and to reinforce what I had learned.

I am a Consistent Winner Because:
1.  I objectively identify my edges.
2.  I predefine the risk in every trade.
3.  I completely accept the risk or I am willing to let go of the trade.
4.  I act on my edges without reservation or hesitation.
5.  I pay myself as the market makes money available to me.
6.  I continually monitor my susceptibility for making errors.
7.  I understand the absolute necessity of these principles of consistent success and , therefore, I never violate them.
Five Fundamental Truths: 
1. Anything can happen.
2. You don’t need to know what is going to happen next.
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.
5. Every moment in the market is unique.

Addional Mark Douglas Material in PDF form.
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Mark Douglas makes some great statements

In the book Trading In The Zone, Mark Douglas makes some great statements that I truly believe are important.  He states:

I AM A CONSISTENT WINNER BECAUSE:

  • I objectively identify my edges
  • I predefine the risk of every trade
  • I completely ACCEPT the risk or I am willing to let go of the trade
  • I act on my edges without reservation or hesitation
  • I pay myself as the market makes money available to me
  • I continually monitor my susceptibility for making errors
  • I understand the absolute necessity of these principles of consistent success and, therefor, I always follow them with confidence and joy.

What you’ll notice about his statements is that it is he is assuming that you have already done the first set of bullets up top; that you have already created a plan and you already have a set of RULES.  Now you might ask, how do I know if my set of rules now will work next month or next year? GREAT question. The market dates back all the way into the late 1700’s.  There is literally a few HUNDRED years of data.  That’s why I say that back testing is KEY.  Now that doesn’t mean that you need to back-test 200 years of data.  Not even close.  You want to back-test a reasonable time depending on your time-frame of trading.  For example, if I plan on trading based on a daily system, then I might back-test the last 5-6 years.  If I’m going to trade based on an intra-day 3 minute chart, I would probably backtest about a year.  There is no way to KNOW what is going to happen, but trading really boils down to probabilities.  Time and time again the same things tend to repeat themselves.  Why do you think the markets tend do to the same things over and over.  Why does it seem that certain stocks that are in the same class look the same from a chart perspective?  How come a company will report great quarterly results, but still go down? It’s because there is a greater number of traders that BELIEVE that this is where an equity is too much or too little.  Why do you think there are people who are talking about a “recession” right now?  Again, it’s because the same things seem to be occurring that did prior to a previous recession and people have that BELIEF.

So what does all this mean?  What can you gather from all this?  Well, a few things actually.  One is to make sure you create, find and organize a PLAN for trading.  Think about it as if you wanted to open up a company.  Do the research and find out how some of these traders got started and what they did.  Once you’ve done that, write down your plan and look at your questions from up top.  Once you can answer ALL of them, then you are moving toward being a consistently profitable trader.  Then take a look at what Mark Douglas wrote.  You have to own these statements mentally.  You have to truly believe that you are a consistent winner because of all of the statements above.

Remember, you are starting a business, and if you want your business to succeed, you need to have a PLAN!

“Plan your trade, and trade your plan” – Anonymous

Trading Wisdom

THE 5 FUNDAMENTAL TRUTHS OF TRADING:

 1. Anything can happen.
2. You don’t need to know what is going to happen next 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.
5. Every moment in the market is unique.

THE 7 PRINCIPLES OF CONSISTENCY:

 
1. I objectively identify my edges.
2. I predefine the risk of every trade.
3. I completely accept the risk or I am willing to let go of the trade.
4. I act on my edges without reservation or hesitation.
5. I pay myself as the market makes money available to me.
6. I continually monitor my susceptibility for making errors.
7. I understand the absolute necessity of these principles of consistent success
and, therefore, I never violate them.

6 Personality Traits and impact upon trading

Locus of control – The degree to which a trader believes that the ability to be successful is within his or her control;
Maximizing tendency – The degree to which individuals seek optimum outcomes from their decisions, not just outcomes that meet or exceed expectations;
Regret susceptibility – The tendency to look back on outcomes of decisions and focus on negative aspects, creating regret;
Self-monitoring – People’s tendency to track and control their own thoughts, feelings, and behaviors;
Sensation seeking – The degree to which people seek varied and stimulating experience;
Type A behavior – The degree to which individuals are driven to achieve.  (more…)

Mark Douglas :Quotes

page 121

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 the 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 happining over another.

5) Every moment in the market is unique.

Page 185

I AM A CONSISTENT WINNER BECAUSE:

1) I objectively indentify my edges.

2) I predefine the risk of every trade.

3) I completely accept the risk or I am willing to let go of the trade.

4) I act on my edges without reservation or hesitation.

5) I pay myself as the market makes money available to me.

6) I continually monitor my susceptibility for making errors.

7) I understand the absolute necessity of these principles of consistent success and, therefore, I never violate them.

Secrets of Jesse Livermore

1. Money Management:
    * “I trade on my own information and follow my own methods.”
    * “The desire for constant action irrespective of underlying conditions is responsible for many losses on Wall Street, even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.”

2. Business of Investing:
    * “I believe that anyone who is intelligent, conscientious, and willing to put in the necessary time can be successful on Wall Street.  As long as they realize the market is a business like any other business, they have a good chance to prosper.”
3. The Investor Self:
    * “My satisfaction always came from beating the market, solving the puzzle.  The money was the reward, but it was not the main reason I loved the market.  The stock market is the greatest, most complex puzzle ever invented – and it pays the biggest jackpot…it was never the money that drove me.  It was the game, solving the puzzle, beating the market that had confused and confounded the greatest minds in history.  For me, that passion, the juice, the exhilaration was in beating the game, a game that was a living dynamic riddle…”
4. Market Analysis:
    * “What beat me was not having the brains enough to stick to my own game – that is, to play the market only when I was satisfied that precedents favored my play.”
    * “It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urgings of a magnetic personality when plausibly expressed by a brilliant mind.”

5. Routines:
    * “It is what people actually did in the stock market that counted – not what they said they were going to do.”
    * “The game of speculation is the most uniformly fascinating game in the world.  But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer.  They will die poor.” (more…)

How Trader Personality Affects Trading

A recent pilot study addresses the interesting topic of how a trader’s personality affects his or her trading performance. The researchers focused on six personality traits and their impact upon trading:
Locus of control – The degree to which a trader believes that the ability to be successful is within his or her control;
Maximizing tendency – The degree to which individuals seek optimum outcomes from their decisions, not just outcomes that meet or exceed expectations;
Regret susceptibility – The tendency to look back on outcomes of decisions and focus on negative aspects, creating regret;
Self-monitoring – People’s tendency to track and control their own thoughts, feelings, and behaviors;
Sensation seeking – The degree to which people seek varied and stimulating experience;
Type A behavior – The degree to which individuals are driven to achieve.  (more…)