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Welcome to the Fourth Dimension in trading.....
on January 8, 2004
The process of becoming a successful traders is not just about learning about markets and developing a trading system that works, there is so much more to it than that. Most people get wrapped up in practical nuts and bolts of trading or investing but miss the most important step. Developing the proper mental and psychological skills.
To become consistent, it is essential that one spend some time getting to know what the market really is as opposed to what the trader would like it to be. The market is not your enemy, does not owe you anything and does not care whether you win or lose. It just is. The sooner one accepts that, the faster he/she progresses. This means performing a careful self-assessment, identifying beliefs that will short circuit consistency and getting them out of the way. As Douglas describes it, 95% of the trading errors all traders make are due to his or her attitudes (fears) about four things. 1) being wrong, 2) losing money, 3) missing out and 4 ) leaving money on the table. Getting over them may seem daunting in the beginning but that is where the book comes in.
Douglas also describes the process that all successful traders must go through and that is developing a probabilistic mindset. All great traders have learned to think in probabilities. This means that every market decision is only made once a risk/reward ratio has been determined, stop losses and profit goals established and pre-determined conditions for taking the trade known. By removing the extraneous "noise" that causes undue emotional and psychological stress, decisions become easier to make.
As is true of most things in life, sounds easier to do than it is but the good news is that with a little practice and with help of an exercise outlined in the book, it is very doable.
Zone is a book that you will want to read multiple times. As Douglas says, it is a book that took him five years of his life to write. It was obviously a labor of love. This comes through loud and clear when reading it. The book is also one that should be in the library of anyone in the markets today, no matter whether your approach is straight technical analysis, strictly fundamental or (if you are like me) somewhere in between. My book is covered in post-it notes, underlines and yellow highlighter. It is also one of the three best books on trading to date that I have reviewed.
Matt Blackman - Technical trading writer/reviewer and regular contributor to Technical Analysis of Stocks & Commodities Mag, Traders Mag (Europe), Working Money, Traders.com Advantage and SFO Magazine, Investopedia.com and the thechartmaster.com