This post discusses some of the key lessons that can be learnt from Trading in the Zone by Martin Douglas.
The book, and this post, is focused more at shorter term traders / speculators, as opposed to longer term investors. Although, lessons about better understanding our own psychology and beliefs systems, are applicable to people of all investing time frames.
The main focus of this book is in the title, Trading in the Zone. Some of the quotes and descriptions provide will hopefully help you to achieve that state of mind. This post, and Douglas's book, assumes you already have a trading process with a positive edge. Douglas defines a positive edge as - "an edge is nothing more than an indication of a higher probability of one thing happening over another".
The hope is this post can help you achieve, or become aware of, a state of mind that is more advantageous to successful trading. As the Royal Marines say "It's a State of Mind". Often times traders believe that more research and market analysis will solve their problems. Whereas in fact, it is their own internal belief systems preventing them from being consistently profitable.
Below are 7 ways Douglas defines how to become a consistent winner:
#1 "I am a consistent winner because..."
"i - "I objectively identify my edges"
Do you have a trading process with a positive edge that is objective? The word objectively is key. This means your edge cannot be subjective - i.e., how you feel or what you think will happen. Are there set variables that you can consistently identify that will lead to a positive outcome over numerous events. A way to think about this is imaging you're a casino. A casino knows the edge is in their favour. Therefore, over the course of many outcomes (think roulette spins) their edge will play out and the expectancy will be positive. Of course though, the casino does not know on which individual outcome they will win. On the micro level individual results are unpredictable. However, on the macro level results become predictable given a sample size great enough. In roulette the casino's edge is around 5.26%. Every £1,000,000 bet they would expect to make £52,600.
ii - "I predefine the risk of every trade"
This is where analysis of your own edge and trading results is key. How much should you risk on each trade to find out if it works or…
