Top Lessons from Trading in the Zone – Part 1

Trading in the Zone by Mark Douglas is THE definitive handbook for establishing an effective trading mindset. Consistently profitable traders all over the world attribute a significant part of their success to the implementation of Mark’s thinking strategies.

The overarching premise of Trading in the Zone is learning the mental strategies that allow you to trade without any emotional discomfort – in a carefree, fearless state – that allows you to remain in the opportunity flow of the market.

After years of studying and practicing the principles of Trading in the Zone, here is some trading advice for implementing these principles that really works:

Staying Calm and Fearless

First, a multipurpose strategy for starting out the day in a calm, carefree state. I use this technique just before the market opens, a few minutes before each trade, and after each trade. In this way I’m always clear of any emotional interference that may come from the anticipation of a new trade, the euphoria of a successful trade, or any disappointment of a losing trade. It helps me to stay level headed and perceive the market objectively.

I use a very powerful emotional clearing technique called Core Transformation. I explain more details about Core Transformation here. For the sake of this post I’m just going to say that within a few minutes of using this method you’ll find that even the most intense and stubborn feelings of anxiety or emotional discomfort will be replaced by a peaceful, carefree mindset which is very open to perceiving the opportunities that the market is presenting. In fact I find that after using the technique my natural intuition about the market is heightened.

I know that as traders everyone is trying to sell us something to improve our trading, from hypnotherapy to Navy Seals training. A lot of these programs end up being a disappointment. When it comes to working with traders mindset I’m very firm on only recommending things that I know work from personal experience – guaranteed 100% snake oil free. Core Transformation is as close as it comes to being miraculous in terms of dealing with emotions – and having used it for years I’ve seen not only my trading, but my life transformed. I can’t recommend it highly enough, and it feels great!

Accepting Risk

Learning how to redefine your trading activities in a way that allows you to completely accept the risk is the key to thinking like a successful trader. Learning to accept the risk is a trading skill – the most important skill you can learn. Mark Douglas

Truly accepting the risk of each trade you enter makes a significant difference in the state of calm and equilibrium with which you approach trading. Don’t forget that it is this calm, open and receptive state of mind that will allow you to see clearly what the market is presenting you in terms of opportunity.

Along with other key principles in Trading in the Zone, accepting risk will prevent you from putting your own spin on what is happening in the market – which effectively blinds you to what really is taking place and what is about to unfold.

Here are some strategies that I use to help me accept the risk of each trade:

While I’m preparing for a trade and evaluating where to place my stop, I ask myself “How much am I willing to spend to find out if my trading method, my edge, will work for this trade?”.

For many years I kept a folder with real cash in it. For each trade, once I’d decided the risk, I would take out that amount, really look at it, think about what it represented in terms of things I could buy, and re-ask “Am I willing to spend this much on this trade to find out if my edge will work?” Then I’d put then money in a pouch marked “Spent”.

Another variant of this, if you don’t have time before each trade is to set yourself a maximum daily loss limit for the day. Have that cash in front of you before you start trading, think about what it represents in terms of your mortgage payment, your car payment, a holiday etc. Make that money real. And then ask “Am I willing to spend this today to find out if my edge works?”.

The idea is that you really truly are willing to let go of that money. Its gone. Its spent. You no longer have it. You have to reach the place inside where that’s OK – so that you can then approach the trade without any fear of losing that money. I like to think of it as though I’m buying a lottery ticket. My risk, my stop, is the money I’ve spent to buy the ticket – I may win or I may lose, I’ve really no idea since the market can do anything, but mentally I’ve spent the money to find out.

When I’ve done this – once I’ve established my risk and I’ve let go of the money, I can be really calm as I execute the trade.

This process is going to do any one of a number of things:

a) You are going to get really clear about the expectancy of your method -because if you don’t know what your edge is you can’t truly accept the risk of trading it.

b) Its going to tighten up your decision-making on each trade. If you really accept the risk it will stop you from entering trades that don’t conform to your edge, from over trading, from hesitating etc.

c) If you do believe that its worth spending that money to find out if your edge works – if you feel any emotional discomfort when you think about the risk, about what it represents in real terms of real money – then its presenting you with a fantastic opportunity. The opportunity to clear that emotion using emotional clearing – so that as each day goes by your relationship to risk and to money becomes more and more healthy.

After many years of trading – of failing abyssmally, and then picking myself up and gradually becoming a consistently successful trader, the most important trading skills I’ve learned are in Trading in the Zone and in Core Transformation.