Trading in the Zone - Mark Douglas

Without mastering trading psychology, and controlling your emo ons, you will never
master trading.

“The market is neutral”.

This is essen ally the message of Trading in the Zone, wri en by American trader Mark
Douglas in 2000. If the market is neutral, how come that some traders are consistently
successful, while others are met with failure and heartache?

The answer lies in psychology. It lies in the psychological strategies traders employ (or fail
to employ) when facing the challenges of the stock market environment. An environment
of endless possibili es and enormous risks, one that, to quote from Douglas himself, “has
few, if any, boundaries, and where the poten al to do enormous damage to ourselves
exists”.

In 1990, ten years before the publica on of Trading in the Zone, The Disciplined Trader:
Developing Winning A tudes came out. His author was a rela vely young and unknown
trader. His name? Mark Douglas. Today, more than thirty years later, he’s the go-to name in
the eld of trading psychology. Over the years, his books have been translated into nine
languages, including Korean, Chinese, Polish and Czech. A graduate in psychology from
University of California, San Francisco, he’d turned to trading a er years spent managing a
commercial casualty insurance agency in the suburbs of Detroit, Michigan.

Douglas never writes simply to lecture his readers. He writes to advise them, to let them in
on trading and on what he calls “the psychological dynamics behind trading”. Douglas’
approach to trading is essen ally humanis c. At its core, in fact, Trading in the Zone is more
than just a book about the psychological strategies traders can rely on while opera ng in
the stock market environment. It is, above all, a medita on about human beings in all their
complexi es. “Because every person who trades is a market variable”, he writes, “it can be
said that any single trader can cause virtually anything to happen”.

As he analyses the psychologic behaviours of successful and unsuccessful traders, Douglas

paints the portrait of the “best trader”, or, as he calls it, the consistently successful trader.
Basically, the best traders are those who are never afraid. But how can they not be afraid in
a world, that of the stock market, that may cause them to lose everything they’ve achieved
in the blink of an eye? A world in which a momentary lapse in focus can result in an error of
terrible propor ons? This is the fundamental paradox of trading: how do we remain
focused and con dent in an environment so full of con ic ng variables and uncertain es?
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 THE TRADER’S PROBLEMS

Trading means paradox. Traders are o ered a gi and a curse at the same me. “The gi ”,
Douglas writes, “is that, perhaps for the rst me in our lives, we’re in complete control of
everything we do. The curse is that there are no external rules or boundaries to guide or
structure our behaviour”.

Many traders fail to become consistent winners because they give in to a series of internal
and external problems. Douglas states the 4 problems traders face are as follows:

[Problem #1] The rst problem is the unwillingness to create rules for ourselves, which is
also, unfortunately, the very reason people are a racted to the world of trading in the rst
place. Trading, in fact, presents the individual with a sort of freedom that is complete, and
unlimited.

[Problem #2] The second problem is the failure to take responsibility for your ac ons. Even
outside the trading environment, we all tend to avoid responsibility. It’s easier of course,
and less painful than the other op on. However, when you’re trading and you start blaming
the market for your losses, you’ll only turn the market itself into an enemy, your enemy,
and you’ll end up assigning it the power to arbitrarily give or take away - a power it doesn’t
have. Not taking responsibility keeps you frozen in me, stuck in a cycle of doubt, pain, and
dissa sfac on that won’t let you change nor grow.

As soon as you start embracing responsibility for your ac ons, you’ll stop seeing the market
as an en ty to conquer and overcome. You won’t fear it anymore. “If nothing is
threatening”, Douglas writes, then “there’s nothing to fear”. This is what dis nguishes the
pros from the rest of the traders: professionals are able to see the market objec vely and
without distor on; “therefore, no threat exists for them”.

[Problem #3] The third problem is represented by the trader’s addic on to random
rewards. Random rewards are addic ve and par cularly detrimental to traders, as they
upset the balance traders need to remain consistent. They ins l euphoria and
overcon dence in the human mind, turning the act of winning itself extremely dangerous
for those who have not yet learned how to control themselves.

[Problem #4] The fourth problem is represented by the gap between external and internal
control. The trading environment is, Douglas says, “a psychological wilderness, where it’s
truly every man or woman for himself or herself”. It is impermeable to any form of control
or manipula on exerted by one human being on another. Common laws do not apply to
this self-enclosed reality.

Ul mately, the trading-trader rela onship is one of addic on. The trader, especially the
non-consistent one, Douglas writes, is driven by two compelling forces. The rst one is, “he
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desperately wants that winning feeling back”. The second, “he is extremely enthusias c
about all of the market knowledge he is acquiring”. Let’s look at the adverbs used here.
Desperately. Extremely. Adverbs commonly used to describe addic ons.

THE BEST TRADER

Consistent traders manage to remain focused by accep ng the fact that in trading
“anything can happen”. They don’t just suspect it, they know it, without a shred of doubt.
They have an unshakeable belief in uncertainty which allows them keep their minds open
and get rid of any unrealis c or rigid expecta ons about the market. The best traders have
trained their minds to think in probabili es.

They’ve conquered fear by developing a tudes that prevent them from becoming
reckless. They’ve trained themselves in overcoming what he calls the “four primary trading
fears”. Fear of being wrong. Fear of losing money. Fear of missing out. And fear of leaving
money on the table.

To trade successfully and consistently, you need rst of all to work on yourself. You need to
be consistent. Disciplined. Focused. You need to have – or be er s ll, develop – the right
amount of self-con dence and self-knowledge that will allow you to trade fearlessly, to
accept the risks inherent in trading. You need to learn how to think like a trader.

CONCLUSION

Finally, what’s the thing with the tle? Trading in the Zone. What zone is Douglas talking
about?

It’s only when you’ve reached the stage when you’re carefree, open to all possibili es and
unafraid, that your mind can nally be in sync with the market. “As a result,” Douglas
writes, “you sense what the market is about to do as if there is no separa on between
yourself and the collec ve consciousness of everyone else par cipa ng in the market”.

The zone is what every trader should aim for. The zone is the mental space necessary to
become consistent winners, the space where you’ll nally be able to “trade in the zone”.
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