Mark Douglas was a renowned author, speaker, and educator in the field of trading psychology. His books, “Trading in the Zone” and “The Disciplined Trader”, are considered classics in the trading community, as they offer valuable insights and lessons on how to master the mental and emotional aspects of trading.
In this article, we will summarize some of the key tips on trading psychology from Mark Douglas, and how they can help you improve your trading performance and mindset. He mentions successful trading is about 80% psychological and 20% methodical . Emotion is the enemy of of successful trades.
Tip 1: Accept the Risk of Trading
One of the most important tips from Mark Douglas is to accept the risk of trading, and not to fear it. Douglas argues that fear is the main obstacle that prevents traders from achieving consistent profitability, as it leads to stress, anxiety, and irrational behavior. Fear can also cause traders to avoid taking trades, cut profits short, or hold on to losses.
To overcome fear, Douglas suggests that traders should accept the risk of trading, and not try to avoid or control it. He says that traders should view trading as a game of probabilities, and not as a game of certainties. He also says that traders should have a predefined risk limit for each trade, and be willing to lose that amount without hesitation or regret.
By accepting the risk of trading, traders can free themselves from fear, and trade with confidence, clarity, and discipline.
Tip 2: Develop a Trading Edge
Another tip from Mark Douglas is to develop a trading edge, and not to rely on luck or hope. Douglas defines a trading edge as “anything that gives you a greater than random chance of being right over a series of trades”. He says that a trading edge can be based on technical analysis, fundamental analysis, market sentiment, or any other method that works for the trader.
Douglas emphasizes that traders should have a clear and objective trading edge, and not to trade based on hunches, opinions, or emotions. He also says that traders should test and refine their trading edge, and not to change it based on the outcome of each trade. He also says that traders should trust their trading edge, and not to doubt it or deviate from it.
By developing a trading edge, traders can increase their chances of success, and trade with consistency, objectivity, and confidence.
Tip 3: Cultivate a Disciplined Mindset
A third tip from Mark Douglas is to cultivate a disciplined mindset, and not to let emotions interfere with trading. Douglas says that discipline is the ability to act in accordance with one’s trading plan, regardless of the market conditions, the results of previous trades, or the opinions of others. He says that discipline is the key to achieving trading excellence, as it allows traders to execute their trades flawlessly, and to learn from their mistakes.
Douglas suggests that traders should cultivate a disciplined mindset, and not to let emotions such as fear, greed, anger, or frustration affect their trading decisions. He says that traders should have a clear and detailed trading plan, and follow it strictly. He also says that traders should have a positive and realistic attitude, and not to be overconfident or pessimistic.
By cultivating a disciplined mindset, traders can avoid emotional errors, and trade with calmness, focus, and professionalism.
Tip 4: Embrace the Process, Not the Outcome
A fourth tip from Mark Douglas is to embrace the process, not the outcome, of trading. Douglas says that traders should focus on the quality of their trading, and not on the quantity of their profits or losses. He says that traders should view trading as a skill that can be learned and improved, and not as a gamble that can be won or lost. He also says that traders should enjoy the challenge and the learning experience of trading, and not to be obsessed with the results.
Douglas advises that traders should embrace the process, not the outcome, of trading, and not to judge themselves or their trading based on the outcome of each trade. He says that traders should measure their performance based on how well they follow their trading plan, and how much they learn from their trading. He also says that traders should reward themselves for their efforts, and not for their outcomes.
By embracing the process, not the outcome, of trading, traders can reduce their stress, increase their motivation, and enhance their trading skills.
Tip 5: Think in Terms of Probabilities, Not Certainties
A fifth tip from Mark Douglas is to think in terms of probabilities, not certainties, when trading. Douglas says that traders should understand that trading is a game of probabilities, and not a game of certainties. He says that traders should realize that there is no such thing as a sure thing, a perfect trade, or a guaranteed outcome in trading. He also says that traders should accept that there is always a degree of uncertainty and randomness in the market, and that anything can happen at any time.
Douglas recommends that traders should think in terms of probabilities, not certainties, when trading, and not to have unrealistic or rigid expectations. He says that traders should have a probabilistic mindset, and not a deterministic mindset, when trading. He also says that traders should be flexible and adaptable, and not to be stubborn or dogmatic, when trading. Some questions to ask -
- What is the market telling to me now
- Who is paying up to get in or get out
- How much strength is there
- Is the momentum building
- Can it be measured relative to something
- What would have to happen to indicate momentum is changing
- Is trend weakening or is it a re-tracement
- Has the symmetrical pattern of market disturbed indicating balance of forces
- Has one side gained dominance over the other
- How long the losers may wait to decide and join the stampede
- If the losers do not decide to quit , what may that indicate
By thinking in terms of probabilities, not certainties, traders can avoid disappointment, frustration, and overconfidence, and trade with realism, humility, and openness.
Tip 6 : Learning to be Objective
- No feeling of pressure to do anything
- No feeling of fear
- No feeling of sense of rejection
- There is no right or wrong
- Recognize what market is telling me and this is what to do
- Observe the market from perspective as if not in position although when in
- Not focused on the money , but on the structure of the market