Mark Douglas Trading in the Zone

Ch. 1 - Mental Analysis

• The winners have attained a unique set of attitudes
• No longer susceptible to the common fears and trading errors that plague everyone else
• They stay disciplined, focused, and confident in spite of adverse conditions
• Best traders take risk, and accept and embrace that risk - there is a psychological gap between assuming your are a risk-taking trader and accepting that there is inherent risk in each trade
• The best traders can put on a trade without the slightest bit of hesitation and just as easily admit it is not working and get out of the trade without the slightest bit of emotional discomfort.
• If you are unable to trade without emotional discomfort, you have not learned to accept the risks inherent in trading.  You're trying to avoid something that is unavoidable 
• As traders you're confronted with being wrong and losing money constantly, and both rank very high on what people are afraid of
• Primary Trading fears that cause trading errors
• attitudes about being wrong, losing money, missing out, and leaving money on the table
• Fear causes us to mentally narrow our focus of attention to the object of our fear, this means thoughts about other possibilities, as well as info from the market, get blocked.  You will no longer think about all the rational things you've learned about the market until you are no longer afraid and the event is over.
• Logic Trap
• Because the market offers too many variables to consider you will never learn enough to fully anticipate every scenario.  There are no limits to the markets behavior because its participants can do anything at any moment to cause virtually anything to happen.
• If you are afraid of being wrong or losing money, you can never learn enough to compensate for these fears.  You therefore cannot be confident in the face of uncertainty
• Market Analysis
• When you operate from the assumption that more or better market analysis will create consistency, you will be driven to gather as many market variables as possible into your arsenal of trading tools.  However you will still be disappointed and betrayed by the markets because of something you did not see or give consideration to.  You will feel like you can't trust the markets, but the reality is you can't trust yourself
• Trading Easily
• As long as you are susceptible to rationalizing, justifying, hesitating, hoping, and jumping the gun, you will not trust yourself.  If you can't trust yourself to be objective and act in your best interest, it will be impossible to achieve consistent results.
• Until you acquire the mindset to stay confident in the face of constant uncertainty, trading will not be easy and simple.
• Your future self
• The future projection of the trader you want to be is something you will have to grow into.
• Many of the ideas will be in direct conflict with the beliefs you presently hold about the nature of trading.
• Your willingness to accept that other possibilities exist will make this process faster and more efficient

Ch. 2 - The Lure of Trading

• The underlying attraction of trading is the unlimited freedom of creative expression.  This is something that has been denied for most of us
• Emotional Pain is caused by an imbalance between your mental state and the exterior world
• When these are not balanced we experience it as dissatisfaction, anger, frustration
• As a child we are constantly denied creative expression
• Don't touch, ect...by the time we are adults we have heard several thousand denials, and thus have had several thousand denied impulses
• As a child, we reconcile these denied impulses by crying.  As an adult the denied impulses accumulate and manifest themselves in addictive / compulsive behavior habits
• ie: children who didn't feel they had enough attention, will have unresolved emotional energy that compels them to crave attention.  As adults the draw attention to themselves to satisfy the addiction
• These unreconciled denied impulses affect our ability to stay focused and disciplined while trading
• Safeguards - rules / boundaries while trading
• Trading is in constant motion with no beginning or end.  It is unlike any other activity because you are the only one who decides when it starts, how long it lasts, and when to end
• Regardless of what you have planned, psychological factors come into play.  if you become distracted, scared, or overconfident you will act in erratic and unintended ways
• Since there are no boundaries, we must act with some self control
• Problems
• Rules - Most people are resistant to rules in trading because it is a completely boundless environment 
• Responsibility - We want the freedom to make choices, but that doesn't mean we are willing to accept the responsibility of the outcome
• When we act on our own ideas, we put our creative ability on the line and get instant feedback on how well our ideas worked.  It's difficult to rationalize away any unsatisfactory results.  If we enter into unplanned, random trades, it's much easier to shift the responsibility by blaming other things
• Random rewards - monkeys will keep doing a task if the reward is given randomly, however if it is given on a consistent basis, and then it is stopped, they will stop as soon as the rewards are stopped.  
• Chemicals in our brain our released when we receive an unexpected, pleasant surprise.  If we trade randomly and get a good result, it will always be an unexpected, pleasant surprise
• External vs Internal Control
• One reason many professionals fail in the market is that they have the ability to control and manipulate their environment to fulfill their needs and desires.  As traders we have no ability to control the market externally

Ch 3 - 

• Taking Responsibility - sounds simple but is not easy to grasp or put in practice.  You must understand the ways in which you are and are not responsible for your success as a trader.
• Complete responsibility - All of your results are self generated, based on your interpretations of market information, the decisions you make and the actions you take
• Without complete responsibility you 
• establish an adversarial relationship with the market that takes you out of the constant flow of opportunity.  
• mislead yourself into believing that your trading problems can be rectified through market analysis
• Shaping Your Mental Environment - your ultimate goal is consistency.  
• Your goal has to to learn to think like a consistently successful trader.  They have eliminated the effects of fear and recklessness from their trading
• Fear based errors come from rationalizing, subconsciously distorting info, hesitating, jumping the gun, or hoping.  Once the fear is gone, there won't be a reason to make these errors and they will disappear from your trading
• Euphoria from a string of winners is also as dangerous as fear
• The Zone
• It is a carefree state of mind where there is absolutely no fear and you react instinctively.  You don't weigh alternatives or consider consequences or 2nd guess.  
• You cannot force yourself into the zone, but you can develop a positive winning attitude
• Positive winning attitude is expecting a positive result from your efforts, with the acceptance that whatever results you get are a perfect reflection of your level of development and what you need to learn to do better
• Others get bogged down in negative self-criticism, regret, and self-pity
• Expectations are our mental representations of how some future moment in the environment is going to look, sound, feel, smell or taste.  Depending on how much energy is behind the expectation, it can hurt a lot when it isn't fulfilled.
• Blaming the market
• As children most of the time we were forced out of a state of joy or happiness by someone with more power or authority.  We had no choice (or believed to have no choice) or responsibility for what put us into emotional pain.  Thus the outside force was to blame.
• We feel betrayed because these situations were unexpected or unanticipated and we were unprepared for how some people in our lives had the potential to behave.
• If we haven't accepted and prepared for the inherent risks of trading and don't know how to guard against these natural connections between our past and present, we will end up blaming the market for our results instead of taking responsibility for them.
• The market
• The purpose of the market is to facilitate people taking money from each other.  It is trying to separate you from your money just as much as the opposite.
• If you blame / feel betrayed by the market you are expecting the collective actions of everyone participating in the market to make the market act in a way that gives you what you want.
• Consequences of avoiding pain
• Conscious level - We shield painful information by rationalizing, justifying, or making a case for staying in a losing trade.  Some typical ways we do this are to call our trading buddies, talk to our brokers, look at indicators we never use, all for the purpose of gathering unpainful information in order to deny the validity of painful information
• Subconscious - will automatically distort, alter, specifically exclude information from our conscious awareness
• Euphoria
• if losses are the result of euphoria, it doesn't matter form the streak takes, it can be any number of wins in a row.  But the overconfidence means you cannot perceive any risk because it makes you believe that nothing can go wrong.  If nothing can go wrong, there are no need for boundaries or rules to govern your behavior
• Winning Attitude
• Is leaving money on table more painful than taking a loss?  When we lose there are a number of ways to shift the blame and not accept responsibility, but we are completely responsible for leaving money on the table.
• The most efficient path to discovering what you need to be successful is a winning attitude.  It produces the kind of mindset that is most conducive to discovering something no one else has experienced
• Many traders think they have a winning attitude, when they don't or expect the market to develop the attitude for them by giving them winning trades.  No amount of market analysis will give you a winning attitude
• Stop expecting the market to give you anything or do anything for you.  If you stop fighting the market, and yourself, the market will not be your opponent.  You will quickly recognize exactly what you need to learn, and how quickly you will learn it

Ch 4 - Consistency - a state of mind

• What separates traders is not what they and when they do it, it is how they think about what they do and how they're thinking when they do it
• People who are truly happy don't need to do anything in order to be happy.  Traders who are consistent don't have to try to be consistent, they are consistent.  There is no struggle, they see exactly what they need to see and act on it in the moment.  
• Nothing is being blocked from your awareness, so it is effortless
• Having to try indicates that there is some degree of struggle or resistance.  The best traders don't try to get anything from the market, they take advantage of whatever the market is offering.
• Understanding Risk
• accepting the risk means accepting the consequences of your trades without emotional discomfort or fear
• possibility of being wrong, losing, missing out, leaving money doesn't cause defense mechanisms to kick in and take you out of the opportunity flow
• you make yourself available to take advantage of an opportunity, you don't impose any limitations or expectations on the market's behavior, and you are satisfied to let the market do whatever it is going to do
• Pros don't not perceive anything that the market does as threatening because of the way they view risk

Ch 5. 

• Dynamics of Perception - market doesn't generate happy or painful information, just simply information.
• When you first looked at a chart, the information was undifferentiated and although all the information about opportunities was there, they were invisible to you.  Most of us have no concept to which we are continually surrounded by invisible opportunities inherent in the information around us
• Unless you're in a completely new or unique situation, operating out of genuine openness, we won't perceive something that we haven't learned yet
• People learn to see what they want to see, until they learn to counteract the energy that blocks their awareness of whatever is unlearned and waiting to be discovered
• Perception and risk
• Boy is curious and bitten by a dog, when he sees a new dog he is afraid.  To other observers, the new dog is friendly and the boy's fear is irrational.  There is still more to be learned about dogs, but the boy is now afraid to experience it
• A top trader would say the now moment has nothing to do with your last trade.  Each on is independent, so if you feel fear it is unfounded.
• Our minds are built to associate similar things and project our feelings towards that dog onto the dog so you perceive the information the dog shows as threatening even tho the information generated by the dog is not threatening.
• The market generates information from a neutral perspective.  It provides the observer with an unending stream of opportunities to do something on your own behalf.  If what you perceive causes you to feel fear, ask yourself: Is the information inherently threatening, or are you simply experiencing the effect of you own state of min reflected back to you?
• When you hesitate on a good signal, instead of perceiving the signal from an objective, positive perspective, you experienced it from a negative one

Ch 6.

• Most traders experience the market through their last couple trades.  Pro's are not negatively / positively impacted by their last few trades
• Secret of the Nature of trading - at the core of one's ability
• trade w/o fear or overconfidence
• perceive what the market is offering from its perspective
• stay completely focused on the ' now moment opportunity flow'
• spontaneously enter the'zone' - a strong belief in an uncertain outcome with an edge in your favor.  You believe without a doubt that anything can happen regardless of what has just happened.
• The fear of being/admitting wrong causes us to place an inordinate amount of significance on the info that tells us we're right
• Not pre-defining your risk, not cutting your losses, or not systematically taking profits are the 3 most common trading errors you can make
• The reason typical traders do this is because they believe it is not necessary.  It is only not necessary if he believes that he knows what is going to happen next, based on what he perceives is happening in any given moment now
• Believing, assuming, or thinking he knows will be the cause of virtually every trading error.

Ch 7

• Thinking in probabilities
• Like a casino, you only needs odds in your favor and a large sample size.  At the micro level you don't know which hands you will win or lose (based on variables like how the individual players act, ect), only that over time you will take in the rake (game has an expected outcome)
• Trading is the same, you may have the same model that has an edge, but you don't know at the micro level how the other traders will act.
• So you must act on every edge because you will never know which edge will lead to a positive or negative outcome
• Most traders crave certainty that analysis appears to give them.  Every trader wants to be right on every single trade.   You can only be certain that certainty does not exist.
• If each moment in the market is unique, anything is possible, then any expectation that does not reflect these boundary-less characteristics is unrealistic
• Managing expectations
• protecting ourselves from mental pain is the same way we protect ourselves from physical pain.  We try to avoid physical pain by moving away or deflecting it.  We avoid mental pain by ignoring, rationalizing, justifying, excusing, getting angry, or gathering information that will neutralize the conflicting information.
• if we have an expectation, we expect it to be right.  If it comes an unfulfilled expectation we become unhappy.  If something causes us to be unhappy we use our pain avoidance mechanisms to exclude, distort, diminish our awareness to protect us
• To avoid pain, we narrow or focus and concentrate on information that keeps us out of pain, regardless of how insignificant or minute
• If we are trading counter trend, we ignore any trend continuation signals until the pressure of losing too much money becomes unbearable
• Goal is to be rigid in your rules, and flexible in your expectations
• Rules are there for self trust and protect us in an environment with few boundaries
• Flexible in expectations so you can perceive, with clarity and objectivity, what the market is communication from its perspective
• Eliminating emotional risk
• Thinking in a probabilistic environment
• Anything Can happen
• You dont need to know what is going to happen next to make money
• There is a random distribution between wins and losses for any given set of variables that define an edge
• An edge is nothing more than an indication of a higher probability of one thing happening over another
• Every moment is unique in the market
• The potential to experience emotional pain comes from the way you define and interpret the information you're exposed to.  With appropriate expectations, you will eliminate the potential to define and interpret market information as either painful or threatening
• As a trader when you are expecting a random outcome, you will always be a little surprised at whatever the market does, even if it conforms exactly to your definition of an edge and u win.  However expecting a random outcome doesn't mean that you can't use your full reasoning and analytically abilities to project and outcome.  You just can't expect to be right.  If you are right you can't expect that whatever you did last time will work next time even if the situations appear identical.  If you approach trading from the perspective that you don't know what will happen next, you will circumvent your mind's natural inclination to make the 'now moment' identical to some earlier experience.
• When I put on a trade, all I expect is that something will happen.  Regardless of how good the edge is, I expect nothing more than for the market to move or to express itself in some way.  I know from past market behavior the odds of it moving in my direction are acceptable, in relationship to how much I am willing to spend to find out if it does.  I also know how much I am willing to let the market move against my position.  There is always a point where the odds of success are greatly diminished in relation to the profit potential.  At that point it's not worth spending any more money to find out if the trade is going to work.  If the market reaches that point, I know without any doubt, hesitation, or internal conflict I will exit the trade.
• The loss does not create any emotional damage because I don't interpret the experience negatively.  Losses are simply the cost of doing business to make myself available for the winning trades.  If the trade does turn out to be a winner, I know at what point I am going to take my profits.
• The best traders are in the now moment because there is no stress.  There is nothing at risk other than the amount of money they're willing to spend on a trade.   They are not trying to be right or trying to avoid being wrong, nor prove anything.  If and when the market tells them their edges aren't working or it's time to take profits, their minds do nothing to block this information.  They completely accept what the market is offering them, and they wait for their next edge.

Ch 8

• Working with your beliefs
• Consistency is the goal, it is the result of a carefree, objective state of mind, where we are able to perceive and act upon anything the market is offering us
• carefree means confident but not euphoric.  You don't feel fear, hesitation, compulsion because you've eliminated the potential to interpret market information as threatening
• objectivity means you have conscious access to everything you have learned about the nature of the market.  nothing is being blocked by your pain avoidance mechanisms
• making yourself available = means trading from the perspective you have nothing to prove.  You aren't trying to win or avoid losing.  You aren't trying to get your money back or take revenge.  You come to the market with no agenda other than to let it unfold and be in the best state of mind to recognize opportunities it makes available
• "now moment" - there is no potential to associate an opportunity to get into, get out of, add to, detract from a trade with a paste experience that already exists in your mental environment
• Fundamental Truths
• Anything can happen - there are always unknown forces in every market at every moment
• You dont need to know what is going to happen next in order to make money - There is a random distribution between wins and losses for any given set of variables that defines an edge.  Trading is a simply a probability and numbers game.  All you need to know is:
• the odds are in your favor before you put on a trade
• how much it's going to cost you to find out if its is going to work
• The only variables you need to know is whether the variables you use to define an edge are present at any given moment.
• Every moment in the market is unique - it has never existed nor will ever exist again

Ch 9

• Nature of beliefs
• Just because you understand something is different than using it at a functional level.  Understanding is just the first step.
• Conflicting beliefs will sabotage your best intentions, and you will not be in the 'now moment'
• Now that you understand you don't have to know what's going to happen next, and that even trying to know will detract from your ability to stay objective in the moment you will have a conflict between your old and this new belief.
• It takes a considerable amount of mental work to integrate this new understanding into your mental trading environment
• Origins of Belief
• Pure memory - is only sensory information that is not organized or attached to words or concepts
• Belief - is a concept about the way the external environment expresses itself
• concepts combines sensory information with language
• They are a very important part of defining our quality of life, yet they are rarely thought about
• None of us are born with beliefs, they are acquired in many ways, usually instilled by other people.  The ones we struggle with the most are the usually the ones acquired from others without our conscious consent
• How beliefs shape our lives
• they manage our perception and interpretation of environmental information in a way that is consistent with what we believe
• they create our expectations (what we know projected onto some future moment)
• anything we do, or express, will be consistent with what we believe
• they shape how we feel about the results of our actions
• Our truth will determine:
• the possibilities we perceive in relation to what is available from the environment's perspective
• how we interpret what we receive
• the decisions we make
• our expectations of the outcome
• the action we take
• how we feel about the result of our efforts
• If we are in a good state, we can say what we perceived was consistent with our objective and what was available from the environment's perspective.  If we are unhappy we can say relative to the environmental situation, the beliefs we are operating from dont work well and are not useful.

Ch 10

• Impact of beliefs on trading
• Beliefs take a life of their own, and resist any force that would alter their present form
• All beliefs demand expression
• You must train your mind believe in the uniqueness of each moment, and deactivate any other belief that argues something different.
• Beliefs keep on working regardless of whether or not we are consciously aware of their existence in our mental environment

Ch 11

• 3 stages of trader development
• Mechanical
• Build self trust necessary to operate in an unlimited environment
• Learn to flawlessly execute a trading system
• Train your mind to think in probabilities
• Create a strong, unshakable belief in your consistency as a trader
• What separates the 'consistently great' athletes from everyone else is their distinct lack of fear of making a mistake.  They don't have a reservoir of negatively charged energy waiting to well up and pounce on their conscious thought process and kill them. Your mistakes help point you in the right direction, accept them as simply your current level of expertise.
• Subjective - you use anything you have ever learned about the nature of market movement to do whatever it is you want to do
• Intuitive  
• If you're going to become a consistent winner, mistakes can't exist in the kind of negatively charged context in which they are held by most people
• Work on acquiring a new set of positively charged beliefs about what it means to make a mistake, along with de-activating any negatively charged beliefs that would argue otherwise or cause you to think less of yourself for making a mistake
• How to develop self discipline
• Find a clear purpose why you want to monitor yourself
• Direct your attention to what you think, say, or do
• If you're not focused on your objective, choose to redirect your words, thoughts, or actions in a way that is consistent with what you are trying to accomplish.
• The more willfully you engage in this process, the faster you will create a mental framework that functions in a way consistent with your objectives
• Self discipline is a mental technique to redirect our focus of attention to the object or goal of our desire, when that goal or desire conflicts with some other component of our mental environment
• I am a consistent winner because:
• I objectively identify my edges - 
• objective means there's no potential to define, interpret and perceive any market information form either a painful or euphoric perspective.
• stay objective by keeping expectations neutral, always take unknown forces into consideration.  Unknown forces are other traders waiting to act on price movement
• I Pre-define the risk of every trade
• I completely accept risk or I am willing to let go of the trade
• I act on my edges without reservation or hesitation
• I pay myself as the market makes money available to me
• I continually monitor my susceptibility for making errors
• I understand the absolute necessity of these principles of consistent success and there I never violate them
• Exercise: trading like a casino
• Find a any set of mechanical market variables that defines an edge
• Find mechanical profit and stop loss targets based on this edge
• Stick with one time from to enter and exit, you can only use the others to help define the edge
• Take 1/3 profits on the scalp (1.5 - 2 pts emini or 4 ticks bonds)
• Take 1/3 profits on the profit target, Move stop to break even
• Use the carefree state to experience the 'now opportunity flow' and trade last 1/3 when it indicates to get out
• Look for 3:1 risk to reward edges
• Trade in samples sizes of 20 to determine if an edge is working or not
• Accept the risk that you can be wrong in all 20 trades.  For SPY 3 pts at 150 shares = $900
• This exercise will create a head-on collision between your desire to think objectively in probabilities and all the forces inside you that conflict with this desire.  The amount of difficulty will be in direct proportion to the degree to which these conflicts exist.  When you have a hard time, use self-discipline to refocus on your objective.  Write down the 5 fundamental truths / 7 principles of consistency so you can see while trading.  Acknowledge the conflict, and refocus on what you're trying to accomplish.