{"id":585750,"date":"2023-08-11T16:00:09","date_gmt":"2023-08-11T14:00:09","guid":{"rendered":"https:\/\/ftmo.com\/?p=585750"},"modified":"2023-08-14T08:27:49","modified_gmt":"2023-08-14T06:27:49","slug":"how-to-trade-in-the-zone","status":"publish","type":"post","link":"https:\/\/ftmo.com\/en\/how-to-trade-in-the-zone\/","title":{"rendered":"How to “Trade in the Zone”"},"content":{"rendered":"

Why is trading psychology often neglected by traders? Does it really have an impact on the trading results? Isn\u2019t it enough to just analyze the market better, backtest, and forwardtest more strategies? Psychology, unfortunately, for a lot of people is still an undiscovered area and this subject is rarely taught at primary school, therefore, the importance of it is often overlooked. You may have the best trading strategy in the world that has a proven track record and delivered robust test results, however, when something unexpected occurs, which will inevitably happen, it will come down to your ability of dealing with adversity and your mental state.<\/em><\/p>\n

History<\/h2>\n

Mark Douglas (1948\u20132015) was a renowned author and trading psychologist known for his expertise in the field of trading psychology. He gained recognition for his work in helping traders develop their mental discipline and mindset necessary for success in the financial markets. His book “Trading in the Zone” is considered a seminal work in the area of trading psychology. Douglas’s approach to trading psychology focused on helping traders overcome common psychological barriers such as fear, greed, and impulsivity. He emphasized that understanding and managing these emotions were key to becoming a consistently profitable trader. His work also stressed the importance of embracing uncertainty in trading and maintaining a structured trading plan.<\/p>\n

In this article we will provide a summary of his book \u201cTrading in the zone\u201d. We will also discuss the ideas covered in the book, and will also try to outline the advantages and disadvantages of its use in the modern trading world.<\/p>\n

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\nIntroduction<\/h2>\n

First two chapters can be defined as an introduction part of the book in which Mark lays out the basic characteristics of the market. The book starts by highlighting how fundamental analysis was once considered the primary approach to making trading decisions. In the late 1970s and early 1980s, technical analysis was largely dismissed as unconventional and even considered mystical by most of the trading community. However, the tables turned as technical analysis gained acceptance and prominence among traders. In the book, the author emphasizes that the shift from fundamental to technical analysis was primarily driven by the desire for consistent profitability. While fundamental analysis tries to predict future prices based on mathematical models that incorporate various factors, it often fails to account for the emotional behavior of traders and their influence on price movements. As a result, trading decisions based solely on fundamental analysis proved challenging to execute profitably.<\/p>\n

Technical analysis, on the other hand, focuses on understanding repetitive patterns in the behavior of traders. These patterns emerge due to consistent behavior exhibited by traders, creating opportunities for predicting future price movements. Technical analysis became a powerful tool as it allowed traders to adapt their strategies to these patterns and develop a better understanding of market behavior.<\/p>\n

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However, the book does not merely focus on technical analysis; it delves deeper into the concept of mental analysis, which Mark Douglas considered to be the next step in successful trading. The author points out that even with technical analysis, traders often find themselves in a state of fear, anxiety, or frustration due to their inability to execute trades effectively. The root of this challenge lies in traders’ psychological reactions to uncertainty, losses, and missed opportunities.<\/p>\n

The shift from a technical analysis of markets to a self-analysis of trading psychology has been prompted by traders’ dissatisfaction with the gap between perceived potential profits and actual results. Technical analysis offers numerous opportunities, but the struggle lies in translating market understanding into consistent gains. Many traders have experienced moments of market insight but struggle with executing trades effectively. This discrepancy between predictions and actions is known as the “psychological gap,” which hampers successful trading.<\/p>\n

The book delves into the psychological aspect of trading, emphasizing that the ability to think like a successful trader is key to consistent profits. Successful traders possess a unique set of attitudes that enable them to remain disciplined, confident and focused in the face of uncertainty. Fear is a common hindrance, leading traders to make errors and distort market information. The book argues that the root cause of these issues is traders’ inability to accept and embrace the inherent risks of trading.<\/p>\n

Traditional approaches to trading, such as an extensive market analysis, may not address the core psychological challenges. Instead, traders need to develop attitudes that foster trust, confidence, and objectivity in their decision-making. The book’s goal is to guide traders toward adjusting their beliefs and attitudes, allowing them to trade without fear while maintaining prudent risk management. Successful trading is seen as a process of personal growth and adaptation, challenging existing beliefs to pave the way for more efficient trading behavior.<\/p>\n

The psychological obstacles<\/h2>\n

The inner child<\/h3>\n

In the second chapter of the book, Mark Douglas explains how trading attracts people\u2019s minds with the possible positive outcome and what dangers are awaiting a trader in the markets. It is important to note that while trading is often associated with gambling, however, the main advantage over us as traders, is that in trading, there is no end to the amount of losses as well. The fundamental attraction of trading is the unlimited freedom of creative expression it offers, a freedom often denied in other areas of life. Traders can establish their own rules and boundaries, fostering a sense of liberation. However, this freedom comes with unique psychological challenges that can lead to failure. Despite the enticing possibilities, many traders struggle due to the absence of proper psychological resources and awareness.<\/p>\n

Mark compares trading to an environment without restrictions, where numerous possibilities exist, presenting both financial and psychological risks. The central challenge lies in creating an internal mental structure that balances the freedom to trade with the potential for damage. However, trading as a task is complicated by mental resistance rooted in early life experiences within structured social environments.<\/p>\n

Curiosity emerges as a common trait among all newborns, reflecting an innate inner-directed force for learning and exploration. Children exhibit a natural inclination to explore their surroundings, driven by inner attractions. This inner-directed guidance, termed “natural attractions,” governs individual interests. It aligns with a deeper level of identity, transcending acquired personality traits shaped by societal influences.<\/p>\n

What was worth noting in this chapter were the following points.\u00a0<\/b><\/p>\n