Six Most Important Concepts of Trading

'The Disciplined Trader' and 'Trading In The Zone' are widely considered to be some of the most influential trading books in history. The two books read in conjunction contain arguably six of the most important concepts of trading. In this post, we’ll review those concepts.

First, a little bit about the author, Mark Douglas. Not much is known about him aside from the fact that he was a trader himself and that he experienced and overcame the different trading psychology issues traders tend to face.

Mark Douglas began coaching traders in 1982 and later introduced the concept of trading psychology in his two groundbreaking books: 'The Disciplined Trader' and 'Trading In The Zone'.

To those who are unfamiliar with the aforementioned books, here’s a quick description of each taken from Amazon:

The Disciplined Trader:

One of the first books to address the psychological nature of how successful traders think ~ The Disciplined Trader is now an industry classic.   In this ground-breaking work published in 1990 ~ Douglas examines the causes as to why most traders cannot raise and keep their equity on a consistent basis ~ and brings the reader to practical and unique conclusions as to how to go about changing any limiting mindset. The trader is taken through a step-by-step process to breakthrough those queries ~ and begin to understand that their very thoughts may be limiting their ability to accumulate and succeed at trading.

Trading in the Zone:

Douglas uncovers the underlying reasons for lack of consistency and helps traders overcome the ingrained mental habits that cost them money.  He takes on the myths of the market and exposes them one by one teaching traders to look beyond random outcomes, to understand the true realities of risk, and to be comfortable with the "probabilities" of market movement that governs all market speculation.

Now that we have all of that covered, as promised, here are the six important concepts derived from those books.

Trading is a Numbers Game

The best traders treat trading like a numbers game. But it’s not just the best traders, in fact, the best salespeople, poker players, and sportsmen have the same approach.

Playing the numbers game means repeating the same exact process over and again and trusting in the long-term expectancy of the game or the model used to play the game.

No Need For a Crystal Ball

Losing traders are obsessed with market analysis because they crave certainty… they secretly want to be right on every single trade.

Drawing little lines on charts and stacking indicators appears to give them that certainty.

But it’s only an illusion of certainty. Successful traders understand that you don’t need to be right all the time to make money.

Random Distribution of Outcome

An edge is just an indication of a higher probability of an event.

And there is a random distribution between wins and losses for any given set of variables that define an edge. Hence, the importance of assessing results over the long run.

Winning Traders Think Differently

Winning traders understand that market analysis is not the path to consistent results. Market analysis will not solve trading problems created by lack of confidence, discipline, emotional control, or improper focus.

Winning traders have developed a different attitude about being wrong, losing money, missing out, and leaving money on the table. They’ve found a way to eliminate the effects of fear and recklessness from their trading.

Anything Can Happen

Every moment in the market is unique. There’s no point in clinging to your chart analysis because you can't control the market.

How much you lose when you lose and win when you win. That’s all that matters.

The Secret To Effortless Trading

Traders should seek to stay completely focused in the "now moment opportunity flow". They should train themselves to spontaneously enter the 'zone,' which is an unshakeable belief in an uncertain outcome with an edge in your favor.

Conclusion

Many new traders are eager to learn more about technical analysis in hopes of becoming more successful. But arguably the most important thing is to develop the mental skills to trade effectively and maximize your profits.