FOREWORD:
The great bull market in stocks has led to an equally great bull market in the number of books
published on the subject of how to make money trading the markets. Many ideas abound, some good,
some not, some original, some just a repackaging of earlier works. Occasionally, though, a writer
comes forward with something that really sets him or her apart from the pack, something special. One
such writer is Mark Douglas. Mark Douglas, in Trading in the Zone, has written a book that is the
accumulation of years of thought and research—the work of a lifetime—and for those of us who view
trading as a profession, he has produced a gem.
Trading in the Zone is an in-depth look at the challenges that we face when we take up the challenge of
trading. To the novice, the only challenge appears to be to find a way to make money. Once the novice
learns that tips, brokers' advice, and other ways to justify buying or selling do not work consistently, he
discovers that he either needs to develop a reliable trading strategy or purchase one. After that, trading
should be easy, right? All you have to do is follow the rules, and the money will fall into your lap.
At this point, if not before, novices discover that trading can turn into one of the most frustrating
experiences they will ever face.
This experience leads to the oft-started statistic that 95 percent of futures traders lose all of their money
within the first year of trading. Stock traders generally experience the same results, which is why
pundits always point to the fact that most stock traders fail to outperform a simple buy and hold
investment scenario.
So, why do people, the majority of whom are extremely successful in other occupations, fail so
miserably as traders? Are successful traders born and not made? Mark Douglas says no. What's
necessary, he says, is that the individual acquire the trader's mindset. It sounds easy, but the fact is, this
mindset is very foreign when compared with the way our life experiences teach us to think about the
world.
That 95-percent failure rate makes sense when you consider how most of us experience life, using
skills learned as we grow. When it comes to trading, however, it turns out that the skills we learn to
earn high marks in school, advance our careers, and create relationships with other people, the skills we
are taught that should carry us through life, turn out to be inappropriate for trading. Traders, we find
out, must learn to think in terms of probabilities and to surrender all of the skills we have acquired to
achieve in virtually every other aspect of our lives. In Trading in the Zone, Mark Douglas teaches us
how. He has put together a very valuable book. His sources are his own personal experiences as a
trader, a traders coach in Chicago, author, and lecturer in his field of trading psychology.
My recommendation? First see how a trading community looks like and then Enjoy Douglas's Trading
in the Zone and, in doing so, develop a trader's mindset
PREFACE :
The goal of any trader is to turn profits on a regular basis, yet so few people ever really make consistent
money as traders. What accounts for the small percentage of traders who are consistently successful?
To me, the determining factor is psychological—the consistent winners think differently from everyone
else.I started trading in 1978. At the time, I was managing a commercial casualty insurance agency in
the suburbs of Detroit, Michigan. I had a very successful career and thought I could easily transfer that
success into trading. Unfortunately, I found that was not the case.
By 1981, I was thoroughly disgusted with my inability to trade effectively while holding another job,
so I moved to Chicago and got a job as a broker with Merrill Lynch at the Chicago Board of Trade.
How did I do? Well, within nine months of moving to Chicago, I had lost nearly everything I owned.
My losses were the result of both my trading activities and my exorbitant life style, which demanded
that I make a lot of money as a trader. From these early experiences as a trader, I learned an enormous
amount about myself, and about the role of psychology in trading. As a result, in 1982, I started
working on my first book, The Disciplined Trader: Developing Winning Attitudes.
When I began this project I had no concept of how difficult it was to write a book or explain something
that I understood for myself in a manner and form that would be useful to other people. I thought it was
going to take me between six and nine months to get the job done. It took seven and a half years and
was finally published by Prentice Hall in 1990. In 1983, I left Merrill Lynch to start a consulting firm,
Trading Behavior Dynamics, where I presently develop and conduct seminars on trading psychology
and act in the capacity of what is commonly referred to as a trading coach. I've done countless
presentations for trading companies, clearing firms, brokerage houses, banks, and investment
conferences all over the world.
I've worked at a personal level, one on one, with virtually every type of trader in the business, including
some of the biggest floor traders, hedgers, option specialists, and CTAs, as well as neophytes As of this
writing, I have spent the last seventeen years dissecting the psychological dynamics behind trading so
that I could develop effective methods for teaching the proper principles of success.
What I've discovered is that, at the most fundamental level, there is a problem with the way we think.
There is something inherent in the way our minds work that doesn't fit very well with the
characteristics shown by the markets. Those traders who have confidence in their own trades, who trust
themselves to do what needs to be done without hesitation, are the ones who become successful. They
no longer fear the erratic behavior of the market. They learn to focus on the information that helps them
spot opportunities to make a profit, rather than focusing on the information that reinforces their fears.
While this may sound complicated, it all boils down to learning to believe that: (1) you don't need to
know what's going to happen next to make money; (2) anything can happen; and (3) every moment is
unique, meaning every edge and outcome is truly a unique experience. The trade either works or it
doesn't. In any case, you wait for the next edge to appear and go through the process again and again.
With this approach you will learn in a methodical, non-random fashion what works and what doesn't.
And, just as important, you will build a sense of self-trust so that you won't damage yourself in an
environment that has the unlimited qualities the markets have.
Most traders don't believe that their trading problems are the result of the way they think about trading
or, more specifically, how they are thinking while they are trading. In my first book, The Disciplined
Trader, I identified the problems confronting the trader from a mental perspective and then built a
philosophical framework for understanding the nature of these problems and why they exist.
I had five major objectives in mind in writing Trading in the Zone:
To prove to the trader that more or better market analysis is not the solution to his trading difficulties or
lack of consistent results.
To convince the trader that it's his attitude and "state of mind" that determine his results.
To provide the trader with the specific beliefs and attitudes that are necessary to build a winner's
mindset, which means learning how to think in probabilities.
To address the many conflicts, contradictions, and paradoxes in thinking that cause the typical trader to
assume that he already does think in probabilities, when he really doesn't.
To take the trader through a process that integrates this thinking strategy into his mental system at a
functional level.
(Note: Until recently, most traders were men, but I recognize that more and more women are joining
the ranks. In an effort to avoid confusion and awkward phrasing, I have consistently used the pronoun
"he" throughout this book in describing traders. This certainly does not reflect any bias on my part.)
Trading in the Zone presents a serious psychological approach to becoming a consistent winner in your
trading. I do not offer a trading system; I am more interested in showing you how to think in the way
necessary to become a profitable trader. I assume that you already have your own system, your own
edge. You must learn to trust your edge. The edge means there is a higher probability of one outcome
than another. The greater your confidence, the easier it will be to execute your trades. This book is
designed to give you the insight and understanding you need about yourself and the nature of trading,
so that actually doing it becomes as easy, simple, and stressfree as when you're just watching the
market and thinking about doing it.
In order to determine how well you "think like a trader," take the following Attitude Survey. There are
no right or wrong answers.
Your answers are an indication of how consistent your current mental framework is with the way you
need to think in order to get the most out of your trading.