Trading in the Zone: Master the Market with Confidence, Discipline, and a Winning Attitude

Trading in the Zone: Master the Market with Confidence, Discipline, and a Winning Attitude

by Mark Douglas

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Overview

Douglas uncovers the underlying reasons for lack of consistency and helps traders overcome the ingrained mental habits that cost them money.  He takes on the myths of the market and exposes them one by one teaching traders to look beyond random outcomes, to understand the true realities of risk, and to be comfortable with the "probabilities" of market movement that governs all market speculation.

Product Details

ISBN-13: 9780735201446
Publisher: Penguin Publishing Group
Publication date: 01/01/2001
Pages: 240
Sales rank: 69,055
Product dimensions: 6.20(w) x 9.30(h) x 0.83(d)
Age Range: 18 Years

About the Author

Mark Douglas is also author of "The Disciplined Trader™:Developing Winning Attitudes" published in 1990 and considered an industry classic—and one of the first books to introduce the investment industry to the concept of trading psychology. Mark began coaching traders in 1982, and has continued to develop seminar and training programs on trading psychology for the investment industry, as well as individual traders.  He has been a frequent speaker at seminars across the world, as well as in the U.S., teaching traders how to become consistently successful.  He is currently working on his third book, and can be reached through his website markdouglas.com.

Read an Excerpt

Chapter 1: The Road to Success: Fundamental, Technical, or Mental Analysis

Who remembers when fundamental analysis was considered the only real or proper way to make trading decisions? When I started trading in 1978, technical analysis was used by only a handful of traders, who were considered by the rest of the market community to be, at the very least, crazy. As difficult as it is to believe now, it wasn't very long ago when Wall Street and most of the major funds and financial institutions thought that technical analysis was some form of mystical hocus-pocus.

Now, of course, just the opposite is true. Almost all experienced traders use some form of technical analysis to help them formulate their trading strategies. Except for some small, isolated pockets in the academic community, the "purely" fundamental analyst is virtually extinct. What caused this dramatic shift in perspective?

I'm sure it's no surprise to anyone that the answer to this question is very simple: Money! The problem with making trading decisions from a strictly fundamental perspective is the inherent difficulty of making money consistently using this approach.

For those of you who may not be familiar with fundamental analysis, let me explain. Fundamental analysis attempts to take into consideration all the variables that could affect the relative balance or imbalance between the supply of and the possible demand for any particular stock, commodity, or financial instrument. Using primarily mathematical models that weigh the significance of a variety of factors (interest rates, balance sheets, weather patterns, and numerous others), the analyst projects what the price should be at some point in the future.

The problem with these models is that they rarely, if ever, factor in other traders as variables. People, expressing their beliefs and expectations about the future, make prices move-not models. The fact that a model makes a logical and reasonable projection based on all the relevant variables is not of much value if the traders who are responsible for most of the trading volume are not aware of the model or don't believe in it.

As a matter of fact, many traders, especially those on the floors of the futures exchanges who have the ability to move prices very dramatically in one direction or the other, usually don't have the slightest concept of the fundamental supply and demand factors that are supposed to affect prices. Furthermore, at any given moment, much of their trading activity is prompted by a response to emotional factors that are completely outside the parameters of the fundamental model. In other words, the people who trade (and consequently move prices) don't always act in a rational manner.

Ultimately, the fundamental analyst could find that a prediction about where prices should be at some point in the future is correct. But in the meantime, price movement could be so volatile that it would be very difficult, if not impossible, to stay in a trade in order to realize the objective.

Technical analysis has been around for as long as there have been organized markets in the form of exchanges. But the trading community didn't accept technical analysis as a viable tool for making money until the late 1970s or early 1980s. Here's what the technical analyst knew that it took the mainstream market community generations to catch on to.

A finite number of traders participate in the markets on any given day, week, or month. Many of these traders do the same kinds of things over and over in their attempt to make money. In other words, individuals develop behavior patterns, and a group of individuals, interacting with one another on a consistent basis, form collective behavior patterns. These behavior patterns are observable and quantifiable, and they repeat themselves with statistical reliability.

Technical analysis is a method that organizes this collective behavior into identifiable patterns that can give a clear indication of when there is a greater probability of one thing happening over another. In a sense, technical analysis allows you to get into the mind of the market to anticipate what's likely to happen next, based on the kind of patterns the market generated at some previous moment.

As a method for projecting future price movement, technical analysis has turned out to be far superior to a purely fundamental approach. It keeps the trader focused on what the market is doing now in relation to what it has done in the past, instead of focusing on what the market should be doing based solely on what is logical and reasonable as determined by a mathematical model. On the other hand, fundamental analysis creates what I call a "reality gap" between "what should be" and "what is." The reality gap makes it extremely difficult to make anything but very long-term predictions that can be difficult to exploit, even if they are correct.

In contrast, technical analysis not only closes this reality gap, but also makes available to the trader a virtually unlimited number of possibilities to take advantage o£ The technical approach opens up...

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 trader's coach in Chicago, author, and lecturer in his field of trading psychology.

My recommendation? Enjoy Douglas's Trading in the Zone and, in doing so, develop a trader's mindset.

Thom Hartle

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Trading in the Zone: Master the Market with Confidence, Discipline and a Winning Attitude 3.9 out of 5 based on 0 ratings. 15 reviews.
LOTONtech More than 1 year ago
I found the first half of this book rather disappointing in the same way as I found The Disciplined Trader: Developing Winning Attitudes disappointing. Too many babbling chapters that boil down to a simple point like "don't fight the market". Too much dodgy pseudo-science about negatively- and positively-charged energy, and too much reliance on non-trading analogies.

The book really redeemed itself in the later chapters with its points about thinking purely in terms of probabilities, expecting the unexpected (see also The Black Swan: The Impact of the Highly Improbable), and accepting that you are fallible (see Soros).

This book will not give you a concrete strategy for beating the markets, except possibly this one: Approach trading like you were operating a casino. Bias the dice slightly in your favour (through fundamental analysis, pattern-spotting, or whatever) and if you roll (trade) enough times then you will generate consistent profits. Accept that in the meantime any one trade can go against you. Relax, and don't fight the market!
Mike87__ More than 1 year ago
Excellent book! I've read over 10 times.. RIP Mark :(
Anonymous More than 1 year ago
I put on a couple trades before I read this book. I read the material and can relate. I hope it will give me insight and keep me focused. On learning a system
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Guest More than 1 year ago
Agree with other SF trader: easier read than his first book & crucial concepts for those wanting success long-term in trading.
Guest More than 1 year ago
This is a much easier read than his first book - more trading examples too. It picks up where the 'Disciplined Trader' left off - and I couldn't wait for the hardcover, so I bought the softcover from Mr. Douglas' website. I wish I would have taken advantage of his coaching services years ago! A must for every serious trader.